Question

On January 1, 2023, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Incorporated, for a total of $805,000 in cash and other consideration. What accounting method does Corgan use for its investment in Smashing?

A. Cash Method
B. Equity Method
C. Accrual Method
D. FIFO Method

Answer 1

Corgan Company uses the Equity Method for its investment in Smashing, Incorporated. Option B

Step-by-step explanation:

Corgan Company uses the Equity Method for its investment in Smashing, Incorporated.

Under the equity method, the investor records the initial investment as an asset and subsequently adjusts it based on its share of the investee's earnings or losses.

In this case, since Corgan acquired 70 percent of the voting stock of Smashing, it has significant influence over the investee and the equity method is appropriate. Option B