What Is the Difference in Accounting between the Cost and Equity Methods?
Logical Corporation, a producer of medical products, disclosed the following investments in affiliates in the notes to its July 31, 2008, financial statements:
|
2008 |
2007 |
|
|
Investments (if classified as available for sale) |
$ 822,188 |
$ 50,000 |
|
Investments (if using the equity method) |
1,677,181 |
2,009,647 |
Discuss the factors that determine whether Logical uses the cost or the equity method in accounting for its investment in affiliates. What events are recorded when the security is accounted for as an available for sale security? What events are recorded when the equity method is used? What does the investment account represent when the security is classified as available for sale? What does it represent using the equity method?