When a company owns less than 20 percent of the common stock of another company,the market value method of accounting for investments in equity securities is used.

Question

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When a company owns less than 20% of the common stock of another company, it typically does not have significant influence over that company. Therefore, the market value method (also known as the fair value method) is used for accounting for investments in equity securities, where the investment is recorded at fair value with changes in fair value recognized in earnings.

When a Company Owns Less Than 20 Percent of the Common