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 rationale for using the equity method for an investment in common stock is as follows: If the investor company owns a large amount of common stock of another company, then it is able to exercise its significant influence over the operating and the financial policy of the investee company. The investor might be able to influence the investee company’s dividend policy with respect to the own cash needs or to raise its income or for the consideration of the tax...

Intermediate Accounting: Reporting and Analysis, 2017 Update

2nd Edition

ISBN: 9781337116619

Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher: Cengage Learning

See similar textbooks

Concept explainers

Stockholder's Equity

The stockholders’ equity (often referred to as the book value of the company) is the number of assets available to the stockholder after its entire liabilities is paid off. The stockholders’ equity is also sometimes referred to as owner's equity. The sto…

Videos

Question

Chapter 13, Problem 17GI

To determine

Explain the rationale for using the equity method for an investment in common stock.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 13, Problem 16GI

Chapter 13, Problem 18GI

Students have asked these similar questions

Incorrect answer!!!!!

Accounting sum 6

Solve noeee

Chapter 13 Solutions

Intermediate Accounting: Reporting and Analysis, 2017 Update

Ch. 13 - Prob. 1GI Ch. 13 - Provide brief definitions for the following terms:...Ch. 13 - Prob. 3GI Ch. 13 - Prob. 4GI Ch. 13 - Prob. 5GI Ch. 13 - Briefly summarize the accounting for an investment...Ch. 13 - Prob. 7GI Ch. 13 - Prob. 8GI Ch. 13 - Prob. 9GI Ch. 13 - Prob. 10GI

Ch. 13 - Prob. 11GI Ch. 13 - Prob. 12GI Ch. 13 - Prob. 13GI Ch. 13 - Prob. 14GI Ch. 13 - Briefly describe how to determine and record the...Ch. 13 - Prob. 16GI Ch. 13 - Prob. 17GI Ch. 13 - Prob. 18GI Ch. 13 - Prob. 19GI Ch. 13 - How does IFRS categorize minority passive...Ch. 13 - Prob. 21GI Ch. 13 - Prob. 22GI Ch. 13 - Prob. 23GI Ch. 13 - Prob. 24GI Ch. 13 - Prob. 25GI Ch. 13 - Prob. 26GI Ch. 13 - Prob. 27GI Ch. 13 - What is a fund? Distinguish between a fund and an...Ch. 13 - Prob. 29GI Ch. 13 - Prob. 30GI Ch. 13 - On January 1, 2016, Weaver Company purchased as...Ch. 13 - Prob. 2MC Ch. 13 - Prob. 3MC Ch. 13 - Prob. 4MC Ch. 13 - Prob. 5MC Ch. 13 - Prob. 6MC Ch. 13 - A security in a portfolio of available-for-sale...Ch. 13 - Prob. 8MC Ch. 13 - Cash dividends declared out of current earnings...Ch. 13 - Prob. 10MC Ch. 13 - Prob. 1RE Ch. 13 - Prob. 2RE Ch. 13 - Prob. 3RE Ch. 13 - Prob. 4RE Ch. 13 - Prob. 5RE Ch. 13 - Prob. 6RE Ch. 13 - Prob. 7RE Ch. 13 - Prob. 8RE Ch. 13 - Prob. 9RE Ch. 13 - Prob. 10RE Ch. 13 - Prob. 11RE Ch. 13 - Prob. 12RE Ch. 13 - Prob. 13RE Ch. 13 - On January 1, Kilgore Inc. accepts a 20,000...Ch. 13 - Prob. 15RE Ch. 13 - Prob. 16RE Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Prob. 9E Ch. 13 - Prob. 10E Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 13E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 16E Ch. 13 - Prob. 17E Ch. 13 - Prob. 18E Ch. 13 - Prob. 19E Ch. 13 - Prob. 20E Ch. 13 - Prob. 21E Ch. 13 - Prob. 22E Ch. 13 - Prob. 23E Ch. 13 - Prob. 24E Ch. 13 - Prob. 25E Ch. 13 - Prob. 26E Ch. 13 - Prob. 1P Ch. 13 - Prob. 2P Ch. 13 - Prob. 3P Ch. 13 - Prob. 4P Ch. 13 - Prob. 5P Ch. 13 - Prob. 6P Ch. 13 - Trading Securities 8th State Bank prepares interim...Ch. 13 - Available-for-Sale Securities Holly Company...Ch. 13 - Investments in Equity Securities Noonan...Ch. 13 - Available-for-Sale Investments Manson Incorporated...Ch. 13 - Prob. 11P Ch. 13 - Prob. 12P Ch. 13 - Prob. 13P Ch. 13 - Prob. 14P Ch. 13 - Prob. 15P Ch. 13 - Prob. 16P Ch. 13 - Prob. 17P Ch. 13 - Prob. 18P Ch. 13 - Prob. 19P Ch. 13 - Prob. 20P Ch. 13 - Prob. 21P Ch. 13 - Prob. 22P Ch. 13 - Prob. 23P Ch. 13 - Prob. 1C Ch. 13 - Investments in Securities Cane Company has two...Ch. 13 - Prob. 3C Ch. 13 - Prob. 4C Ch. 13 - Available-for-Sale Securities The following are...Ch. 13 - Prob. 6C Ch. 13 - Prob. 7C Ch. 13 - Prob. 8C Ch. 13 - Prob. 9C Ch. 13 - Prob. 10C

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:9781285595047
Author:Weil
Publisher:Cengage
Quickbooks Online Accounting
Accounting
ISBN:9780357391693
Author:Owen
Publisher:Cengage
SWFT Comprehensive Vol 2020
Accounting
ISBN:9780357391723
Author:Maloney
Publisher:Cengage
SWFT Corp Partner Estates Trusts
Accounting
ISBN:9780357161548
Author:Raabe
Publisher:Cengage