Q.8RQ - Horngren'S Financial And Managerial Accounting

Question

Question: What method is used for investments in equity securities with more than 50% ownership? Briefly describe this method.

Step-by-Step Solution

Answer

Answer

The consolidation accounting method is used when the investor has ownership of more than 50%.

Step 1: Definition of Consolidated Financial Statement

The consolidated financial statement can be defined as the financial statement reporting information of both parents as well as the subsidiary company. 

Step 2: Accounting Method When the Investment in Equity is More Than 50%

Under the situation where more than 50% of equity is held by the investor in the investee company, the investor is the parent company. The investor company will report such investment using the consolidation method. Under the consolidation method, the financial statements of both businesses are reported together in a consolidated financial statement. Here, an investee company is known as a subsidiary company.