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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Briefly describe the accounting for an investment in common stock under the equity method.

To determine

Describe accounting method for an investment in common stock under the equity method.

Explanation

Investment: It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds.

The accounting method for an investment in common stock under the equity method is as follows:

  • The investment made in common stock are initially recorded at is acquisition cost in equity method. However, in contrast to the fair value method, the investor records the income as an increase to the investment and as an income when it is reported by the investee...

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