Chapter AE, Problem AE.5E

(1)

To determine

Cost method: It refers to an accounting technique used by an investor to determine the income earned on investments made in short-term equity securities of a company.  Thus, the investors who own a non-significant interest by having less than 20% of ownership, then the accounts for investments in short-term equity securities would be made under this method.

Equity method:  It refers to an accounting technique used by an investor to determine the income earned on investments made in long-term equity securities of a company.  Thus, the investor who owns a significant interest by having more than 20%, but less than 50% of ownership, then the accounts for investments in long-term equity securities would be made under this method.

To Record: The stock transactions in the books of E Cosmetics.

(2)

To determine

To Record: The stock transactions in the books of D Incorporation.