Accounting and Finance for Lawyers

Equity Security

For equity securities of less than 20% ownership, cost or fair value methods are used.

For equity securities of between 20% and 50% ownership, equity method accounting is used.

Equity Method

The equity method of account reports investments at cost and then adjusts according to the the investor's proportionate share of the investee's earnings and losses.

For equity securities of greater than 50% ownership, the books are merged. All the assets and liabilities of the subsidiary are reported on the books of the parent company.