What does equity method mean on the CPA exam?
Equity method. Used when the investor can exercise significant influence, presumed at 20% or more of the voting stock. The carrying amount moves with the investee's earnings and is reduced by dividends, so a dividend returns the investment rather than producing income.
Defined against ASC 323-10-15-8, 35-17.
Which CPA exam sections use equity method?
Equity method appears in the FAR section of the CPA exam.
Related terms
- carrying amount: What an asset or liability is currently shown at on the balance sheet: its original amount adjusted for depreciation, amortization, impairment or accrual.
- carve-out method: Excludes a subservice organization's control objectives and controls from both the description and the scope of the service auditor's report.
- inclusive method: Brings a subservice organization's controls inside the description and the scope of the service auditor's report, so one report covers both organizations.
- stock basis: A shareholder's investment in S corporation stock for tax purposes.
- preferred dividends: Dividends owed to preferred shareholders before common receives anything.
- primary beneficiary: The party that must consolidate a variable interest entity: the one with power over its significant activities AND exposure to losses or returns that could be significant.