Most Company purchased 90 percent of the voting common stock of Port Company on January 1, 20X4, and 15 percent of the voting common stock of Adams Company on July 1, 20X4. In preparing the financial statements for Most Company at December 31, 20X4, you discover that Port Company purchased 10 percent of the common stock of Adams Company in 20X2 and continues to hold those shares. Adams Company reported net income of $200,000 for 20X4 and paid a dividend of $70,000 on December 20, 20X4.

Required
Most Company’s chief accountant instructs you to review the Accounting Standards Codification and prepare a memo discussing whether the cost or equity method should be used in reporting the investment in Adams Company in Most’s consolidated statements prepared at December 31, 20X4. Support your recommendations with citations and quotations from the authoritative financial reporting standards or other literature.