What method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company?

Question

Quizplus · Accepted Answer

When one company purchases less than 20% of the outstanding stock of another company, the method of accounting used depends on the relationship between the companies. If the purchasing company has significant influence over the investee, then the equity method is used. If the purchasing company does not have significant influence, then the fair value method can be used. Therefore, either the fair value method or the equity method may be used, depending upon the relationship between the companies.

What Method of Accounting Will Generally Be Used When One