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What is the fair value option for reporting equity securities?

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 fair value method is used when ownership is less than 20% of the company’s outstanding shares and the investor does not have significant influence.

When the fair value method is used, the company would classify the investment as “trading” or “available-for-sale”.

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