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1) The fair value method, used for marketable debt and equity securities. The fair value method is used for debt securities and for certain equity securities. For equity securities, the fair value method is used generally when the investor owns less than 20 percent of the investee company’s outstanding common stock and has little or no influence over the investee.
2) The equity method, used generally when an investor corporation owns less than 50 percent of the outstanding stock of the investee but has the ability to exercise significant influence over the opera-tions of the investee company.
3) The consolidation method, used when the investor corporation owns more than 50% of the inves-tee corporation’s outstanding common stock. With greater than 50% of the outstanding common stock, the investor corporation has a controlling interest in the investee and the investee is a subsid-iary of the investor. The investor consolidates the financial results of the investee with its own financial results and prepares consolidated financial statements. The consolidated financial state-ments are prepared as though the parent (the investor corporation) and the subsidiary (the investee) are a single economic entity.
