The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the investee.

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The equity method is usually used when the purchaser has significant influence over the investee, which is typically defined as owning between 20-50% of the voting shares. For investments where the purchaser has less than 20% ownership and therefore little to no influence, the cost method may be more appropriate.

The Equity Method Is Usually More Appropriate for Accounting for Investments