A firm that can exert significant influence over another entity accounts for its intercorporate investment using the
A)lower of cost or market method.
B)equity method.
C)liability method.
D)consolidation method.
E)acquisition cost method.

Question

Quizplus · Accepted Answer

The equity method is used to account for investments in which the investor has significant influence over the investee, typically when the investor owns between 20% and 50% of the voting stock. Under this method, the investor records its share of the investee's income or loss, and adjusts the carrying value of its investment accordingly. This method reflects the economic substance of the investment and provides a more accurate picture of the investor's financial position and performance than the acquisition cost or lower of cost or market methods.

A Firm That Can Exert Significant Influence Over Another Entity