Download - C H A P T E R 17
Chapter 17-1
Chapter 17-2
C H A P T E R C H A P T E R 1717
INVESTMENTSINVESTMENTS
Intermediate Accounting13th Edition
Kieso, Weygandt, and Warfield
Chapter 17-3
1. Identify the three categories of debt securities and describe the accounting and reporting treatment for each category.
2. Understand the procedures for discount and premium amortization on bond investments.
3. Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
4. Explain the equity method of accounting and compare it to the fair value method for equity securities.
Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives
Chapter 17-4
Investments in Investments in Debt SecuritiesDebt Securities
Investments in Investments in Equity SecuritiesEquity Securities
Held-to-maturity Held-to-maturity securitiessecurities
Available-for-sale Available-for-sale securitiessecurities
Trading securitiesTrading securities
Holdings of less than Holdings of less than 20%20%
Holdings between 20% Holdings between 20% and 50%and 50%
Holdings of more than Holdings of more than 50%50%
Fair value optionFair value option
InvestmentsInvestmentsInvestmentsInvestments
Chapter 17-5
Different motivations for investing:
To earn a high rate of return e.g. interest
revenue from a debt investment or dividend
revenue from an equity investment.
To secure certain operating or financing
arrangements with another company.
Investment Accounting ApproachesInvestment Accounting ApproachesInvestment Accounting ApproachesInvestment Accounting Approaches
Chapter 17-6
Companies account for investments based on
the type of security (debt or equity) and
their intent with respect to the investment.
Investment Accounting ApproachesInvestment Accounting ApproachesInvestment Accounting ApproachesInvestment Accounting Approaches
Illustration 17-1
Chapter 17-7
LO 1 Identify the three categories of debt securities and describe the accounting and reporting treatment for each category.
Debt securities (creditor relationship with anther entity):
Investments in Debt SecuritiesInvestments in Debt SecuritiesInvestments in Debt SecuritiesInvestments in Debt Securities
government securities
Municipal securities
Corporate bonds
Convertible debt
Commercial paper
Type
Held-to-maturity
Trading
Available-for-sale
Accounting Category
Chapter 17-8
LO 1 Identify the three categories of debt securities and describe the accounting and reporting treatment for each category.
Investments in Debt SecuritiesInvestments in Debt SecuritiesInvestments in Debt SecuritiesInvestments in Debt Securities
Accounting for Debt Securities by Category
Illustration 17-2
Chapter 17-9
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
Classify a debt security as held-to-maturity only if it has both
(1) the positive intent and
(2) the ability to hold securities to maturity.
Accounted for at amortized cost, not fair value.
Amortize premium or discount using the effective-interest method unless the straight-line method yields a similar result.
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Chapter 17-10
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration: KC Company purchased $100,000 of 8
percent bonds of Evermaster Corporation on January 1,
2009, at a discount, paying $92,278. The bonds mature
January 1, 2014 and yield 10%; interest is payable each
July 1 and January 1. KC records the investment as
follows:
January 1, 2009Held-to-Maturity Securities 92,278
Cash 92,278
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
Chapter 17-11
LO 2
Illustration 17-3
Schedule of InterestRevenue and BondDiscount Amortization—Effective-Interest Method
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
Chapter 17-12
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration: KC Company records the receipt of the
first semiannual interest payment on July 1, 2009, as
follows:
July 1, 2009
Cash 4,000
Held-to-Maturity Securities 614
Interest Revenue 4,614
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
Chapter 17-13
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration: KC is on a calendar-year basis, it accrues
interest and amortizes the discount at December 31,
2009, as follows:
December 31, 2009
Interest Receivable 4,000
Held-to-Maturity Securities 645
Interest Revenue 4,645
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
Chapter 17-14
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Reporting of Held-to-Maturity Securities
Illustration 17-4
Chapter 17-15
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration: Assume that KC Company sells its
investment in Evermaster bonds on November 1, 2013,
at 99,750 plus accrued interest. KC records this
discount amortization as follows:
November 1, 2013
Held-to-Maturity Securities 635
Interest Revenue 635
$952 x 4/6 = $952 x 4/6 = $635$635
Chapter 17-16
Held-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity SecuritiesHeld-to-Maturity Securities
LO 2
Computation of the realized gain on sale.
Cash 102,417
Interest Revenue (4/6 x $4,000) 2,667
Held-to-Maturity Securities 99,683
Gain on Sale of Securities 67
Illustration 17-5
Chapter 17-17
Companies report available-for-sale securities at
fair value, with
unrealized holding gains and losses reported as part of comprehensive income (equity).
Any discount or premium is amortized.
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-18
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Single Security): Graff Corporation
purchases $100,000, 10 percent, five-year bonds on
January 1, 2009, with interest payable on July 1 and
January 1. The bonds sell for $108,111, which results in
a bond premium of $8,111 and an effective interest rate
of 8 percent. Graff records the purchase of the bonds
on January 1, 2009, as follows.
Available-for-Sale Securities 108,111
Cash
108,111
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-19
LO 2
Illustration 17-6
Schedule of InterestRevenue and BondPremium Amortization—Effective-Interest Method
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-20
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Single Security): The entry to record
interest revenue on July 1, 2009, is as follows.
Cash 5,000
Available-for-Sale Securities
676
Interest Revenue
4,324
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-21
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Single Security): At December 31, 2009,
Graff makes the following entry to recognize interest
revenue.Interest Receivable 5,000
Available-for-Sale Securities
703
Interest Revenue
4,297Graff reports revenue for 2009 of $8,621 ($4,324 + $4,297).
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-22
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Single Security): To apply the fair value
method to these debt securities, assume that at year-
end the fair value of the bonds is $105,000 and that the
carrying amount of the investments is $106,732. Graff
makes the following entry.
Unrealized Holding Gain or Loss—Equity 1,732
Securities Fair Value Adjustment (AFS)
1,732
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-23
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Portfolio of Securities): Webb
Corporation has two debt securities classified as
available-for-sale. The following illustration identifies the
amortized cost, fair value, and the amount of the
unrealized gain or loss. Illustration 17-7
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-24
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Portfolio of Securities): Webb makes
an adjusting entry to a valuation allowance on
December 31, 2010 to record the decrease in value and
to record the loss as follows.
Unrealized Holding Gain or Loss—Equity 9,537
Securities Fair Value Adjustment (AFS)
9,537
Webb reports the unrealized holding loss of $9,537 as other
comprehensive income and a reduction of stockholders’
equity.
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-25
Sale of Available-for-Sale Securities
LO 2 Understand the procedures for discount and premium amortization on bond investments.
If company sells bonds before maturity date:
Must make entry to remove the,
Cost in Available-for-Sale Securities and
Securities Fair Value Adjustment accounts.
Any realized gain or loss on sale is reported in the “Other expenses and losses” section of the income statement.
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-26
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Sale of Available-for-Sale Securities):
Webb Corporation sold the Watson bonds (from
Illustration 17-7) on July 1, 2011, for $90,000, at which
time it had an amortized cost of $94,214.
Cash 90,000
Loss on Sale of Securities 4,214
Available-for-Sale Securities 94,214
Illustration 17-8
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-27
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Sale of Available-for-Sale Securities):
Webb reports this realized loss in the “Other expenses
and losses” section of the income statement. Assuming
no other purchases and sales of bonds in 2011, Webb on
December 31, 2011, prepares the information:Illustration 17-9
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-28
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration (Sale of Available-for-Sale Securities):
Webb records the following at December 31, 2011.
Securities Fair Value Adjustment (AFS) 4,537
Unrealized Holding Gain or Loss—Equity 4,537
Illustration 17-9
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-29
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Financial Statement PresentationIllustration 17-10
Available-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale SecuritiesAvailable-for-Sale Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-30
Trading SecuritiesTrading SecuritiesTrading SecuritiesTrading Securities
Companies report trading securities at
fair value, with
unrealized holding gains and losses reported as part of net income.
Any discount or premium is amortized.
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Debt Debt SecuritieSecuritie
ss
Chapter 17-31
Illustration: Illustration: On December 31, 2010, Western Publishing Corporation determined its trading securities portfolio to be as follows:
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration 17-11
Trading SecuritiesTrading SecuritiesTrading SecuritiesTrading Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-32
Illustration: Illustration: At December 31, Western Publishing makes an adjusting entry:
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Illustration 17-11
Securities Fair Value Adjustment (Trading) 3,750
Unrealized Holding Gain or Loss—Income3,750
Trading SecuritiesTrading SecuritiesTrading SecuritiesTrading Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-33
BE17-4:BE17-4: (Trading Securities) Hendricks Corporation purchased trading investment bonds for $50,000 at par. At December 31, Hendricks received annual interest of $2,000, and the fair value of the bonds was $47,400.
Instructions:
(a) Prepare the journal entry for the purchase of the investment.
(b) Prepare the journal entry for the interest received.
(c) Prepare the journal entry for the fair value adjustment.
LO 2 Understand the procedures for discount and premium amortization on bond investments.
Trading SecuritiesTrading SecuritiesTrading SecuritiesTrading Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-34
BE17-4: BE17-4: Prepare the journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment.
LO 2 Understand the procedures for discount and premium amortization on bond investments.
(a) Trading securities 50,000
Cash
50,000(b) Cash 2,000
Interest revenue
2,000(c) Unrealized Holding Loss - Income 2,600
Securities Fair Value Adj.- Trading
2,600
Trading SecuritiesTrading SecuritiesTrading SecuritiesTrading Securities Debt Debt SecuritieSecuritie
ss
Chapter 17-35
Investments in Equity SecuritiesInvestments in Equity SecuritiesInvestments in Equity SecuritiesInvestments in Equity Securities
Represent ownership of capital stock.
Cost includes: price of the security, plus
broker’s commissions and fees related to purchase.
The degree to which one corporation (investor) acquires an interest in the common stock of another corporation (investee) generally determines the accounting treatment for the investment subsequent to acquisition.
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Chapter 17-36
0 --------------20% ------------ 50% -------------- 100%0 --------------20% ------------ 50% -------------- 100%
SFAS 115 APBO 18, SFAS 142
SFAS 141, SFAS 142
No significant influence usually exists
Significant influence usually exists
Control usually exists
Investment valued using Fair Value
Method
Investment valued using
Equity Method
Investment valued on parent’s books using
Cost Method or Equity Method (investment
eliminated in Consolidation)
Ownership PercentagesOwnership Percentages
Investments in Equity SecuritiesInvestments in Equity SecuritiesInvestments in Equity SecuritiesInvestments in Equity Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Chapter 17-37
Investments in Equity SecuritiesInvestments in Equity SecuritiesInvestments in Equity SecuritiesInvestments in Equity Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration 17-13Accounting and Reporting for Equity Securities by Category
Chapter 17-38
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Accounting Subsequent to Acquisition
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Market Price Available
Value and report the investment using
the fair value method.
Market Price Unavailable
Value and report the investment using
the cost method.*
* Securities are reported at cost. Dividends are recognized when received and gains or losses only recognized on sale of securities.
Chapter 17-39
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Upon acquisition, companies record available-for-sale securities at cost.
Illustration: On November 3, 2010 Republic Corporation purchased common stock of three companies, each investment representing less than a 20 percent interest.
Chapter 17-40
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration: Republic records these investments on November 3, 2010, as follows.
Available-for-Sale Securities 718,550
Cash 718,550
On December 6, 2010, Republic receives a cash dividend of $4,200 from Campbell Soup Co.
Cash 4,200
Dividend revenue 4,200
Chapter 17-41
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration: Republic’s available-for-sale equity security portfolio on December 31, 2010:
Illustration 17-14
Chapter 17-42
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration: On December 31, 2010, Republic records the net unrealized gains and losses related to changes in the fair value of available-for-Sale equity securities in an Unrealized Holding Gain or Loss—Equity account.
Unrealized Holding Gain or Loss—Equity 35,550
Securities Fair Value Adjustment (AFS)
35,550
Chapter 17-43
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration: On January 23, 2011, Republic sold all of its Northwest Industries, Inc. common stock receiving net proceeds of $287,220.
Cash 287,220
Available-for-Sale Securities 259,700
Gain on Sale of Stock 27,520
Illustration 17-15
Chapter 17-44
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration: On February 10, 2011, Republic purchased 20,000 shares of Continental Trucking at a price of $12.75 per share plus brokerage commissions of $1,850 (total cost, $256,850).
Illustration 17-16
Chapter 17-45
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
Available-for-Sale Securities
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Illustration:Illustration 17-16
Securities Fair Value Adjustment (AFS) 99,800
Unrealized Holding Gain or Loss—Equity99,800
Chapter 17-46
P17-6:P17-6: McElroy Company has the following portfolio of securities at September 30, 2010, its last reporting date.
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Trading Securities Cost Fair Value
Horton, I nc. common (5,000 shares) 215,000$ 200,000$
Monty, I nc. pref erred (3,500 shares) 133,000 140,000
Oakwood Corp. common (1,000 shares) 180,000 179,000
On Oct. 10, 2010, the Horton shares were sold at a price of $54 per share. In addition, 3,000 shares of Patriot common stock were acquired at $54.50 per share on Nov. 2, 2010. The Dec. 31, 2010, fair values were: Monty $106,000, Patriot $132,000, and the Oakwood common $193,000.
Chapter 17-47
P17-6:P17-6: Prepare the journal entries to record the sale, purchase, and adjusting entries related to the trading securities in the last quarter of 2010.
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Portfolio at September 30, 2010
Chapter 17-48
P17-6:P17-6: Prepare the journal entries to record the sale, purchase, and adjusting entries related to the trading securities in the last quarter of 2010.
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Cash (5,000 x $54) 270,000
Trading securities
215,000
October 10, 2010 (Horton):
Gain on sale
55,000
Trading securities (3,000 x $54.50) 163,500
Cash
163,500
November 2, 2010 (Monty):
Chapter 17-49
P17-6: P17-6: Portfolio at December 31, 2010
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
Unrealized holding loss - Income 36,500
Securities fair value adj. - Trading
36,500
December 31, 2010:
Chapter 17-50
P17-6:P17-6: How would the entries change if the securities were classified as available-for-sale?
Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%Holdings of Less Than 20%
LO 3 Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
The entries would be the same except that the
Unrealized Holding Gain or Loss—Equity account is
used instead of Unrealized Holding Gain or Loss—
Income.
The unrealized holding loss would be deducted from
the stockholders’ equity section rather than charged
to the income statement.
Chapter 17-51
Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%
An investment (direct or indirect) of 20 percent or
more of the voting stock of an investee should lead
to a presumption that in the absence of evidence to
the contrary, an investor has the ability to exercise
significant influence over an investee.
In instances of “significant influence,” the investor
must account for the investment using the equity
method.
LO 4 Explain the equity method of accounting and compare it to the fair value method for equity securities.
Chapter 17-52
Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%
Equity Method
LO 4 Explain the equity method of accounting and compare it to the fair value method for equity securities.
Record the investment at cost and subsequently adjust the amount each period for
the investor’s proportionate share of the earnings (losses) and
dividends received by the investor.
If investor’s share of investee’s losses exceeds the carrying amount of the investment, the investor ordinarily should discontinue applying the equity method.
Chapter 17-53
E17-17: E17-17: (Equity Method) On January 1, 2010,
Meredith Corporation purchased 25% of the common
shares of Pirates Company for $200,000. During the
year, Pirates earned net income of $80,000 and paid
dividends of $20,000.
Instructions: Prepare the entries for Meredith to record
the purchase and any additional entries related to this
investment in Pirates Company in 2010.
Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%
LO 4 Explain the equity method of accounting and compare it to the fair value method for equity securities.
Chapter 17-54
E17-17: E17-17: Prepare the entries for Meredith to record the purchase and any additional entries related to this investment in Pirates Company in 2010.
Investment in Stock 200,000
Cash
200,000
Cash 5,000
Investment in Stock
5,000
Investment in Stock 20,000
Investment Revenue
20,000
Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%Holdings Between 20% and 50%
LO 4 Explain the equity method of accounting and compare it to the fair value method for equity securities.
($20,000 x 25%)
($80,000 x 25%)