Good Afternoon Everybody

A little background over the Investor Case study. The main highlights was that the Investor Inc,
Purchased 15% of the ABC Corps outstanding common stock.
They had the ability to nominate five out of ten new Board of Directors members
Also Investor Inc will be leading in the refinance of ABC Corp outstanding debt.

The question wasShould Investor Inc. account for its investment under the cost method, or under the
equity method?
We started with the cost method.
In ASC 325 Paragraph 05-03 it basically says that the cost method is generally followed for most
investments in noncontrolled corporations.
o Well, we agree that because Investor Inc purchased 15% of the outstanding common
stock ..so this tells us that it was a noncontrolled corporation.
o We felt that this could also be applicable to the equity method.
So, we did research on the equity method.
We found that on ASC 323-10-05-5 it says that the Equity method is used if the investment enables the
investor to influence the operating or financial decision of the investee.
This applies to Investor Inc because they will be leading a restructuring of ABC Corps
current outstanding debt
In addition, ASC 323-10-15-6 (a)
States that In order to have the ability to exercise influence over the investee --- they need to have a
representation on the board of directors.
Which Investor Inc was given the ability to nominate five new members out of ten to
ABC board of directors

We concluded that Investor Inc has strong influence over the operating and financial policies of ABC
Corp they should follow the equity method.