If Push Company owned 51 percent of the outstanding common stock of Shove Company, which method would be appropriate for financial reporting purposes?

 If Push Company owned 51 percent of the outstanding common stock of Shove Company, which method would be appropriate for financial reporting purposes?

Multiple Choice

Cost method


Full consolidation method Correct

Equity method


Fair value method

Explanation
The full consolidation method is correct. If the investor company acquires more than 50 percent of the investee’s voting shares, it is required to consolidate the investee company.

The cost method is incorrect. While the cost method is an appropriate way to account for equity investment securities, the question asks for the method appropriate for financial reporting purposes. Thus, the full consolidation method is the correct answer.

The equity method is incorrect. The equity method is used when ownership is between 20 percent to 50 percent and when the investor has the ability to exercise significant influence over the operating and financial policies of the investee.

The fair value method is incorrect. The fair value method is used when the investor does not have significant influence and when ownership is between 0 percent to 20 percent.