Your Ask Joey ™ Answer

What is the equity method?

When a company purchases equity securities or invests in another company, there are three ways the investment can be reported: 1) Fair value option, equity method, and consolidation method.

The equity method is used when a company owns 20% to 50% of the outstanding stock of the investment and/or they have significant influence.

Under the equity method, the investment is recorded as an asset on the balance sheet based on the acquired cost (price paid). Subsequent to the initial recording, the investment balance increases when the investment reports net income, and decreases for any net losses or dividends paid by the investment.

Back To All Questions

You might also be interested in...