The equity method of accounting is used for long-term investments in equity securities with significant influence.

Question

Quizplus · Accepted Answer

The statement is true. The equity method is used when an investor has the ability to significantly influence the operating and financial decisions of an investee, typically through owning 20-50% of the voting stock. Under the equity method, the investor records its proportionate share of the investee's net income or loss on its income statement, and adjusts the carrying value of the investment for any dividends received and its share of any investee income or loss.

The Equity Method of Accounting Is Used for Long-Term Investments