Dodson Company owns 17,500 of the 50,000 shares of outstanding common stock of Ferguson Company. Dodson Company should account for this investment using the:

Question

Quizplus · Accepted Answer

According to the equity method, if an investor has the ability to significantly influence the operating and financial policies of an investee, it should account for the investment using the equity method. In this case, Dodson Company owns 35% (17,500/50,000) of the outstanding common stock of Ferguson Company, which gives it significant influence over Ferguson's operating and financial policies. Hence, Dodson Company should use the equity method to account for its investment in Ferguson Company.

Dodson Company Owns 17,500 of the 50,000 Shares of Outstanding