Equity Method of Accounting


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The equity method is one of three methods used to account for equity investments. What are the other two?

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1. Under accrual accounting principles, the equity method is justified because owning at least 20 percent of an investee's company implies the investor can exercise _____ over the investee.

2. What method of accounting is allowed under US GAAP, but not IFRS, for investments that would otherwise be accounted for under the equity method?

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About This Quiz & Worksheet

What methods are used to account for equity investments? How are carrying values accounted for? These are some facts you should be familiar with when you answer the questions found in this quiz and worksheet assessment.

Quiz & Worksheet Goals

For this quiz, you will be asked to do the following:

  • Identify two of three methods used to account for equity investments
  • Understand in what way the equity method is justified under accrual accounting principles
  • Recognize which method is allowed under US GAAP but not IFRS for investments otherwise accounted for under the equity method
  • Recall what the carrying value of an equity investment is adjusted for and reduced by
  • Differentiate between true and false statements about this accounting method

Skills Practiced

  • Interpreting information - verify that you can read information regarding the carrying value of an equity investment and interpret it correctly
  • Information recall - access the knowledge you've gained regarding different methods for accounting for equity investments
  • Knowledge application - use your knowledge to answer true/false questions about the equity accounting method

Additional Learning

You can study more details about this topic when you refer to the lesson titled Equity Method of Accounting. Information covered in this lesson includes:

  • What US GAAP and IFRS stand for
  • How the equity accounting method addresses the receiving of dividends
  • When the equity accounting method would not need to be used