Acquisition of greater than 20% of the outstanding stock of a company normally suggests the use of the

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When acquiring greater than 20% of the outstanding stock of a company, the equity method is typically used. This method is used to account for investments where the investor has significant influence but not control over the investee. With the equity method, the investor records their share of the investee's profits and losses on their own financial statements. The consolidation method would be used if the investor has control over the investee (usually achieved through owning greater than 50% of the outstanding stock). The fair value method is typically used for investments in financial instruments that are actively traded, and the straight-line method is a depreciation method used for tangible assets.

Acquisition of Greater Than 20% of the Outstanding Stock of a Company