The Wise Company acquired a 20% interest in the outstanding common stock of the Smith Company. The Wise Company can exercise significant influence over the operating and financial policies of the Smith Company. The Wise Company should account for its investment in the Smith Company by using the

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When a company acquires a significant but not controlling interest in another company (typically 20% to 50%) and can exercise significant influence over its operating and financial policies, the equity method of accounting is used. This method recognizes the investor's share of the investee's income, losses, and dividends.

The Wise Company Acquired a 20% Interest in the Outstanding