The investor may use the equity method to account for the investment if certain conditions are met and PE GAAP is followed.

Question

Quizplus · Accepted Answer

The equity method can be used to account for an investment if the investor has significant influence over the investee, which is generally presumed to exist when the investor owns between 20% and 50% of the voting stock. Additionally, if PE GAAP (Private Equity Generally Accepted Accounting Principles) is followed, the equity method may be required to be used for certain types of investments.

The Investor May Use the Equity Method to Account for the Investment