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Cost and equity methods

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Define the cost and equity methods or accounting for an investment. Under what circumstances would you use the cost or equity method of accounting for an investment? Why are the percentages of ownership only a guideline when accounting for an investment? please provide a full response, approximately 200 words

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Dear student,

Cost and equity methods are two accounting methods for accounting of investment

Definition of equity method of accounting of investment:
Equity method of accounting of investment is the accounting of investment in which value of each stock/share is counted based on the book value of the stock as reported by the investee corporation.

Accounting treatment:

At acquisition, investment is recorded at cost. Then, subsequent earnings increase the investment account and increase the earnings on the income statement and subsequent losses decrease the investment account and decrease the earnings in income statement. Dividend received decreases the investment account. When the fair ...

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