In a classroom discussion of the relative merits of the equity method and the cost method of accounting for operations of subsidiaries, most students of Professor Long's advanced accounting class expressed a preference for the equity method, influenced in large part by their textbook's support for that method. Student Rita, however, suggested that, for a parent company with several subsidiaries, the cost method of accounting might be more cost-effective because it entails fewer journal entries than does the equity method. In Rita's view, it would be more efficient in such circumstances to make the multitudinous entries for subsidiaries' operations in the working paper for consolidated financial statements than in several ledger accounts in computerized accounting records.
Do you agree with student Rita's view? Explain.

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The Answer of In a classroom discussion of the relative merits of the equity method and the cost method of accounting for operations of subsidiaries, most students of Professor Long's advanced accounting class expressed a preference for the equity method, influenced in large part by their textbook's support for that method. Student Rita, however, suggested that, for a parent company with several subsidiaries, the cost method of accounting might be more cost-effective because it entails fewer journal entries than does the equity method. In Rita's view, it would be more efficient in such circumstances to make the multitudinous entries for subsidiaries' operations in the working paper for consolidated financial statements than in several ledger accounts in computerized accounting records.
Do you agree with student Rita's view? Explain.

In a Classroom Discussion of the Relative Merits of the Equity