Summarize the Accounting Requirements for Investments in Equity Securities

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The Answer is The method of accounting for investments in equity securities is dependent on the percentage ownership. If an investor owns less than 20 percent of the outstanding shares of an investee the fair value method is to be used if fair value is readily available. If fair value is not determinable the cost method should be used. Additionally, the market value method may be used in certain circumstances as allowed by the industry practices exception. If an investor owns 20 to 50 percent of the outstanding shares the equity method is appropriate unless there is evidence the investor is not able to exercise significant influence over the investee. In such cases the fair value method is used. For investment in which the investor holds more than 50 percent of the outstanding shares of the investee, consolidate financial statements are prepared.

Summarize the Accounting Requirements for Investments in Equity Securities

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