Armando Company owns 15,000 of the 50,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the

Question

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Since Armando Company exercises significant influence over Tito Company, the equity method should be used. Under this method, Armando would record its share of Tito's earnings or losses on its income statement and adjust the carrying value of its investment on its balance sheet. This method allows for a more accurate portrayal of the economic reality of the investment and reflects Armando's influence over Tito's operating and financial policies. The market method is not a suitable accounting method for this investment because it is generally used for short-term investments in securities. The cost or market method and the cost method are not appropriate because they do not reflect Armando's significant influence over Tito's operations.

Armando Company Owns 15,000 of the 50,000 Shares of Common