What methods can be used to record an equity investment?
An equity investment is when the company purchases shares in another company. Depending on the percentage of the outstanding shares acquired, the company can report the equity investment using one of the three methods: 1) Fair value method, equity method, or consolidation method.
To determine which method needs to be used, focus on the percentage ownership and whether the company has significant influence. If the percentage ownership is not provided, you can calculate the ownership by dividing the # of shares purchased by the total # of shares outstanding. For example, if the company acquired 5,000 out of 50,000 total shares outstanding, then the percentage ownership would be 10%.
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What is the fair value option for reporting equity securities?
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