(a)
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 investor who own a non-significant interest by having less than 20% of ownership, accounts for investments in short-term equity securities 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, accounts for investments in long-term equity securities under this method.
To Record: The stock transactions for the investment in Incorporation G for Company W using cost method.
(b)
To Record: The stock transactions for the investment in Incorporation G for Company W using equity method.
(c)
To Prepare: A memorandum and explain each method, and show the account balance under each method at December 31, 2019 in a tabular form.
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Chapter H Solutions
Financial Accounting
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