Chapter 13, Problem 4CP

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Cost method:

Cost method is the accounting method used for accounting equity investments which claim less than 20% of the outstanding stock of the investee company.

To explain: The look-through earnings.

2.

To determine

To Identify: The reason behind Person WB favoring look-through earnings.