CPA Review: Methods of Accounting for Investments

Roger Philipp, CPA discusses the three methods of accounting for investments. This brief excerpt from the FAR section of the Roger CPA Review Online and USB course introduces the concepts of Cost Method or Marketable Securities, the Equity method and Consolidation. The excerpted text below comes straight from Roger's Financial Accounting and Reporting textbook.



An investor may acquire equity securities (common or preferred stock) debt securities (bonds) and derivatives (stock rights) in other companies. When a company acquires common stock, we need to determine the appropriate method of accounting for the investment, and this will depend primarily upon the amount of stock that is owned by the investor.

0-20%: Cost Method or Marketable Securities

The implication is that no influence over the investee company exists.

If the security isn't marketable, use the cost method.

20-50%: Equity Method (One-line consolidation)

The implication is that the investor has significant voting influence over the investee.

50% or more: Consolidation

The implication is that the investor has control over the investee.

Members of the investor company constitute a majority of the board of directors of the investee.

Help the AICPA! New Passing Scores Evaluated Under CBT-e

In yet another huge announcement from the AICPA this morning, Roger CPA Review was told that panels are being formed in order to determine a new passing score for each section of the exam. This is in conjunction with the new CBT-e changes that are set to occur 01/01/2011.

Before you start freaking out and signing up for all your exams at once, worrying that the passing rate will be pushed up to 100 points and you will have to get each and every question right - consider that the reasoning behind this review process is to protect the public interest and make the CPA designation stay as prestigious as it is. The AICPA will ensure that the exam is still fair and completely passable. In fact, there is the chance that the passing score will even remain the same.

So if you know of any particularly awesome CPAs, or want to become more involved yourself, volunteer to help the AICPA. The work of the panels will be extremely important to the continued success of the CPA Examination and its role in the CPA licensure process.

From the AICPA:

"When the new Uniform CPA Examination is launched on January 1, 2011, changes in content, format, and structure will be introduced. These changes will require the current passing score to be re-examined. The process to do so will include convening four panels of CPAs – one for each examination section – to prepare the groundwork for the passing score decision by the AICPA Board of Examiners. A new passing score determination is necessary in conjunction with the new examination to ensure that legally defensible CPA Examination pass/fail decisions continue to be made in protection of the public interest.

Panel Nominees
The AICPA is seeking nominations for passing score panel membership. Nominees should be CPAs who:
• have been licensed for between 3 and 5 years
• have supervised entry-level CPAs during the past year
• have NO affiliation with CPA Examination review courses, and
• are willing to participate in an August 2010 two-day meeting in Chicago, IL at the expense of the AICPA.

The selection of panelists from among qualified nominees will be made to ensure broad representation from all segments of the profession and demographic categories. Panelists will be given training at the August meetings on their responsibilities as panel participants.

Submitting Nominations
Nominations may be submitted online at http://vovici.com/wsb.dll/s/4e5ag3f124 or the forms completed and returned by FAX to 609-671-2922. Or, the names and contact information of nominees may be sent by e-mail to passingscorepanel@aicpa.org The information collected about nominees will be used only for the purpose of selecting panel participants..


The deadline for submitting nominations is MARCH 31, 2010.

Final review by the BOE and the determination of the new passing score will take place in the spring of 2011, after scores from the first 2011 testing window become available.

Thank you in advance for helping to identify CPAs who have both the required qualifications and the willingness to contribute their time and expertise to standard-setting"