Equity Method of Accounting
1· Determine the fundamental reasons why the Financial Accounting Standards Board (FASB) requires a company to use the equity method of accounting for investments. Next, propose two (2) theoretical problems of recognizing equity income that the opponents of the equity method would consider. Provide a rationale for your response.
2· Analyze the potential impact of eliminating the retrospective application of the equity method to increases in previously held ownership interests that result in significant influence and which qualify for use of the equity method. In the role of the chief executive officer (CEO) for a midsized company, propose the type of managerial incentives that could influence the company’s percentage ownership in another company. Provide a rationale for your response.
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