Final answer:
The partial equity method and the equity method are accounting methods used to account for investments in another company. They differ in how the investor recognizes their share of the investee's profits or losses.
Step-by-step explanation:
The partial equity method and the equity method are both accounting methods used to account for investments in another company. However, they differ in how the investor recognizes their share of the investee's profits or losses.
Under the equity method, the investor recognizes their share of the investee's profits or losses in their income statement. This method is used when the investor has significant influence over the investee, typically defined as owning 20% to 50% of the voting stock. On the other hand, the partial equity method is used when the investor does not have significant influence and instead recognizes their share of the investee's profits or losses in a separate line item in their financial statements.
For example, let's say Company A owns 30% of Company B's voting stock. If Company A uses the equity method, they would include 30% of Company B's profits or losses in their income statement. However, if Company A uses the partial equity method, they would recognize their share of Company B's profits or losses in a separate line item in their financial statements.