Accounting for long-term investments in equity securities with controlling influence uses the:
A)Controlling method.
B)Consolidation method.
C)Investor method.
D)Investment method.
E)Trading method.

Question

Quizplus · Accepted Answer

The consolidation method is used when an entity has controlling influence over another entity through long-term investments in equity securities. This method requires the combining of the financial statements of both entities, with adjustments made for any intercompany transactions or balances. The controlling entity then reports the combined financial results as if it were a single entity. This method is different from the investor method, which is used for long-term investments in equity securities without controlling influence, and the controlling method, which is used for investments in subsidiaries that are consolidated according to the consolidation method. The trading method is used for short-term investments in securities that are bought and sold for profit.

Accounting for Long-Term Investments in Equity Securities with Controlling Influence