If a company owns more than 20% of the shares of another company and these shares are being held as a long-term investment, which method would the investor normally use to account for this investment?

Question

Quizplus · Accepted Answer

When a company owns more than 20% of the shares of another company and these shares are being held as a long-term investment, the investor normally uses the equity method to account for this investment. The equity method requires the investor to recognize its share of the investee's earnings or losses on its income statement and adjust the carrying value of the investment on its balance sheet.

If a Company Owns More Than 20% of the Shares