
(a)
Equity investment: Equity investments are stock instruments which claim ownership in the investee company and pay a dividend revenue to the investor company.
Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The stock investment transactions for Company B, under the equity method
(b)
The stock investment balance for Company B
(c)
To discuss: The differences between valuation of investment under equity method and fair value method.

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Chapter 15 Solutions
2 Semester Cengage Now, Warren Accounting
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