Madison Corporation holds 15% of Amber Corporation's outstanding common stock. Madison should account for this investment

Question

Quizplus · Accepted Answer

Madison Corporation should account for its 15% investment in Amber Corporation using the cost method because this level of ownership typically does not provide the investor with the ability to exercise significant influence over the investee. The equity method is generally used when the investor has significant influence over the investee, typically interpreted as ownership of 20% to 50% of the voting stock. Consolidation is used when the investor controls the investee, usually through ownership of more than 50% of the voting stock. The investment is not classified as an intangible asset nor as an increase to Stockholders' Equity directly.

Madison Corporation Holds 15% of Amber Corporation's Outstanding Common Stock