Cost and Equity Method - Accounting for Investments

Question 1

When is cost method used for investments??

Answer 1

When the investor doesn’t have significant influence over the investee. 0%-20% ownership. Record investment @ cost, dividend income is booked in the income statement

Question 2

When is the equity method used??

Answer 2

(One line consolidation) - 20% - 50% ownership - investor has significant voting influence over the investee. Record @ cost - increase for income, decrease for dividends and depreciation. (return of capital) - goodwill can be recorded