Section 2: 30–40%2E3
Equity Method Investments
The equity method applies when an investor has significant influence over an investee — typically 20–50% ownership. It's one of the most calculation-heavy investment topics on the exam. Understanding the investment account rollforward (cost + share of income − dividends) is essential.
What AICPA Wants You to Know
- 1Apply the 20-50% presumption for significant influence and know the exceptions
- 2Compute the equity method investment account balance over time
- 3Record investee income/loss and dividends under the equity method
- 4Apply amortization of excess purchase price (including goodwill)
- 5Account for losses that exceed the investment balance (suspension of equity method)