When a company holds between 20% and 50% of another corporation, what method should typically be used for accounting its investment?

The rationale behind choosing the equity method for accounting for investments when a company holds between 20% and 50% of another corporation is primarily based on the concept of significant influence. In accounting terms, being able to exert significant influence typically allows the investor to influence the financial and operating policies of the investee.

When an investor holds a stake in another corporation in this range, it suggests that they have a considerable say in the decisions made by that corporation, potentially influencing management policies and practices. The equity method acknowledges this influence by allowing the investor to recognize their share of the investee's profits and losses in their own financial statements. This means that not only does the investor report the initial investment at cost, but they also adjust it to reflect their portion of the investee’s profits or losses, effectively recognizing the economic reality of their ownership stake.

If the investor were unable to demonstrate significant influence, then a different accounting method might be appropriate, such as the fair value method. This scenario would imply that the investor does not have enough power to participate in the decisions of the investee, which would change how the investment is reported in the financial statements. Therefore, it is essential to assess the level of influence to determine the correct accounting method, aligning