The Wise Company acquired an 20% interest in the outstanding common stock of the Smith Company. The Wise Company can exercise significant influence over the operating and financial policies of the Smith Company. The Wise Company should account for its investment in the Smith Company by using the

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Since the Wise Company has acquired a 20% interest and can exercise significant influence over the Smith Company's operations and financial policies, the equity method is the appropriate accounting method to account for this investment. Under the equity method, the investment is initially recorded at cost and subsequently adjusted for the Wise Company's share of the Smith Company's profits or losses. This method reflects the Wise Company's economic interest in the Smith Company and allows for the recognition of its share of the Smith Company's income or losses on the Wise Company's income statement.

The Wise Company Acquired an 20% Interest in the Outstanding