Choice of Accounting Method – Slanted Building SuppliesSlanted Building Supplies purchased 32 percent of the voting
shares of Flat Flooring Company in March 2003. On December 31, 2003, the
officers of Slanted Building Supplies indicated they needed advice on whether
to use the equity method or cost method in reporting their ownership in Flat
Flooring.Required:a. What factors should be considered in determining whether
equity-method reporting is appropriate?b. Which of the two methods is likely to show the larger
reported contribution to Slanted’s earnings in 2004? Explain.
c. Why might the use of the equity method become more appropriate
as the percentage of ownership increases?