The Wellness Society, a not-for-profit organization, owns 25% of the shares of the Fitness Factory, a for-profit organization. Three of the 10-person board of directors of the Fitness Factory are also directors of the Wellness Society. How should the Wellness Society account for its investment in the Fitness Factory?

Question

Quizplus · Accepted Answer

The equity method is used when an investor has significant influence over the investee but does not have control. In this case, the Wellness Society owns 25% of the shares in the Fitness Factory and has three directors on the board, indicating significant influence. Therefore, the equity method is appropriate to account for the investment.

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