Adjusted Cost Method/Equity Method

Question 1

Equity Method

Answer 1

Used when an investor has significant influence over the investee

20-50% ownership percentage

Recognize income when it is earned not when paid in dividends

Investment recorded at cost with income * % increasing the investment and dividends/loss * % decreasing the investment

investment amount fluctuates with earnings/dividends/impairment/amortization

Question 2

Adjusted Cost Method

Answer 2

0-20% ownership percentage

Recorded at cost but updated to FMV
realized/unrealized gains and losses reported in net income

Question 3

Adjusted Cost

Answer 3

Cost - adjustments like impairment

cost in cost out, the investment amount doesn’t change