Packer Publications purchased 40,000 of the outstanding 100,000 shares of Bear Homes.How should Packer account for this investment?

Question

Quizplus · Accepted Answer

Packer should account for this investment using the equity method, as Packer has significant influence over the investee. The equity method is used when an investor has the ability to exert significant influence over an investee, which is presumed to exist when the investor owns between 20% and 50% of the voting stock of the investee. In this case, Packer owns 40% of the outstanding shares of Bear Homes, giving it significant influence over the company.

Packer Publications Purchased 40,000 of the Outstanding 100,000 Shares of Bear