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Choice of Accounting Method

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Choice of Accounting Method
Understanding
Slanted Building Supplies purchased 32 percent of the voting shares of Flat Flooring Company in March
20X3. On December 31, 20X3, the officers of Slanted Building Supplies indicated they needed advice
on whether to use the equity method or cost method in reporting their ownership in Flat Flooring.
Required
a. What factors should be considered in determining whether equity-method reporting is appropriate?
b. Which of the two methods is likely to show the larger reported contribution to Slanted's earnings in
20X4? Explain.
c. Why might the use of the equity method become more appropriate as the percentage of ownership
increases?

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Solution Summary

The solution examines choice of accounting methods. The factors that should be considered in determining whether equity-method reporting is appropriate is determined.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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