Under the equity method of accounting for a stock investment,the investment initially should be recorded at:
A)cost.
B)cost minus any differential.
C)proportionate share of the fair value of the investee company's net assets.
D)proportionate share of the book value of the investee company's net assets.

Question

Quizplus · Accepted Answer

Under the equity method of accounting, the investment is initially recorded at cost. This cost includes any acquisition-related expenses such as brokerage fees or legal fees. The equity method requires the investor to record their proportionate share of the investee's income or loss on the income statement and adjust the investment account for their share of the investee's changes in equity. It does not involve fair value or book value adjustments at the time of the initial investment.

Under the Equity Method of Accounting for a Stock Investment,the