The Helping Hand Society, a not-for-profit organization, owns 25% of the shares of Dawson's Diner, a for-profit organization. Three of the ten-person board of directors of Dawson's Diner are also directors of the Helping Hand Society. How should the Helping Hand Society account for its investment in Dawson's Diner?

Question

Quizplus · Accepted Answer

Since the Helping Hand Society owns 25% of the shares of Dawson's Diner and also has representation on its board of directors, it has significant influence over the company's operations. Therefore, the equity method of accounting should be used to account for the investment. This method requires the recognition of the proportionate share of Dawson's Diner's profits or losses in the Helping Hand Society's financial statements.

The Helping Hand Society, a Not-For-Profit Organization, Owns 25% of the Shares