Reporting of Investments in Common-Stock

An investor has significant influence over an investee if it can change the course of operations from those the investee would otherwise have undertaken. U.S. GAAP contains a rebuttable presumption that an investor has (does not have) significant influence if it does (does not) own 20% or more of the investee's voting shares.

In accounting for an investment in the stock of another company, a method that debits the proportionate share of the earnings of the other company to the investment account and credits that amount to a revenue account as earned. When the investor receives dividends, it debits cash and credits the investment account. An investor who owns sufficient shares of stock of an unconsolidated company to exercise significant control over the actions of that company must use the equity method. It is one of the few instances in which the firm recognizes revenue without an increase in working capital.

Said of a purchase acquisition when the fair value of the net assets acquired exceeds the fair value of all consideration given. Both U.S. GAAP and IFRS require the acquirer to use the fair valuations for initial balance sheet amounts and recognize a gain in income for the period of acquisition for the excess of fair valuations over purchase price.

The acquisition of goods and services in exchange for some asset. See purchase method for the context of acquisition of another company or division.

The paper or software representation thereof, which shows the firms being consolidated along with various additions and subtractions to eliminate double counting and intercompany transactions.

A balance sheet account on consolidated statements showing the equity in a less-than- 100%-owned subsidiary company; equity allocable to those who are not part of the controlling (majority) interest; classified as shareholders' equity on the consolidated balance sheet. The income statement must subtract the noncontrolling interest in the current period's income of the less-than-100%-owned subsidiary to arrive at net income for the period. Previous terminology referred to noncontrolling interest as the minority interest.

A balance sheet account on consolidated statements showing the equity in a less-than-100%-owned subsidiary company; equity allocable to those who are not part of the controlling (majority) interest; classified as shareholders' equity on the consolidated balance sheet. The income statement must subtract the noncontrolling interest in the current period's income of the less-than-100%-owned subsidiary to arrive at net income for the period. Previous terminology referred to noncontrolling interest as the minority interest.

Said of an intercorporate investment accounted for with the equity method. With this method, the income and balance sheet total assets and equities amounts are identical to those that would appear if the parent consolidated the investee firm, even though the income from the investment appears on a single line of the income statement and the net investment appears on a single line in the Assets section of the balance sheet.

A company's statement of which entities it includes in a particular set of consolidated financial statements. Sometimes firms have a choice as to which to consolidate, but most often in U.S. GAAP, the firm has little choice.

consolidated (financial) statements; consolidated balance sheet; consolidated income statement; consolidated statement of cash flows Statements issued by legally separate companies under the control of a parent company and that show financial statements as they would appear if the companies were one economic entity, called the "consolidated entity."

U.S. GAAP uses this term in describing who should consolidate a variable interest entity (VIE). This usage is unrelated to insurance policies. U.S. GAAP provides no technical definition of this term but relies on common understanding.