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The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.Liquidating dividends : Liquidating dividends occur when there is an excess of dividends declared over earnings of the acquired company since the date of acquisition.
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Under the equity method, the purchaser records its investment at original cost.
This balance increases with income and decreases for dividends from the subsidiary that accrue to the purchaser.
The purchasing company uses the cost method to account for this type of investment.
Under the cost method, the investment is recorded at cost at the time of purchase.
When the amount of stock purchased is between 20% and 50% of the common stock outstanding, the purchasing company’s influence over the acquired company is often significant.