Brian Company purchased, as a long- term investment, 40% of the outstanding shares of Wilson Company. At the end of the year the market value of the shares had increased. The increase in market value of Wilson Company shares will affect Brian Company by:
A) increasing stockholders' equity and investments
B) increasing assets and stockholders' equity
C) having no effect
D) increasing investments and cash

Question

Quizplus · Accepted Answer

When a company owns 20% to 50% of another company's stock, it typically uses the equity method of accounting. Under this method, changes in market value do not affect the investor's financial statements. Instead, the investor recognizes its share of the investee's profits or losses.

Brian Company Purchased, as a Long- Term Investment, 40% of the Outstanding