The Equity Method of Accounting
for Investments in Common Stock
- Explain the "Cost Method" of
accounting for
investments in common stock
- Explain the "Equity Method" of
accounting for
investments in common stock.
- What is an "investee?"
- What is an "investor?"
- Under the equity method, earning
of income by
the investee has what effect on the investor?
- Under the cost method, earning of
income by
the investee has what effect on the investor?
- What is the basis for recognizing
income from
an investor under the cost method?
- What are liquidating dividends?
- What effect do liquidating
dividends have on
an investment accounted for under the cost method?
- What is significant
influence? How can
significant influence be demonstrated? What role does it play in
selecting a method to be used for accounting for an investment in
common
stock?
- For an investor that can exercise
significant
influence over an investee, how can the use of the cost method be
utilized
to smooth or manipulate the investor's income?
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