ABC owned the following equity securities held as long-term investments on December 31, 2013. All are traded over the counter. $$\begin{array} { | l | l | }
\hline \text { Security } & \text { Percent Owmed } \
\hline \text { M, Common Stock } &15 \text { percent } \
\hline \text { N, Com mon Stock } & 25 \text { percent with signitic ant intluence } \
\hline \text { O, Comm on Stock } & 5 \text { percent } \
\hline
\end{array}$$ ABC should account for these securities by applying the:

Question

ABC owned the following equity securities held as long-term investments on December 31, 2013. All are traded over the counter. $$\begin{array} { | l | l | } 
\hline \text { Security } & \text { Percent Owmed } \
\hline \text { M, Common Stock } &15 \text { percent } \
\hline \text { N, Com mon Stock } & 25 \text { percent with signitic ant intluence } \
\hline \text { O, Comm on Stock } & 5 \text { percent } \
\hline
\end{array}$$ ABC should account for these securities by applying the:

Quizplus · Accepted Answer

The equity method is used for investments where the investor has significant influence over the investee, typically indicated by ownership of 20% to 50% of the voting stock. In this case, only security N falls into this category with 25% ownership and significant influence. Securities M and O, with 15% and 5% ownership respectively, do not suggest significant influence, so the cost method (or fair value method if applicable under current accounting standards for long-term investments) would be used instead.

ABC Owned the Following Equity Securities Held as Long-Term Investments