Summer Corporation acquired a 45% interest in Winter Company on June 1, 2006, for $250,000. The controller for Summer Corporation is now preparing the first set of financial statements since the acquisition and is unsure about what method of accounting is most appropriate for the investment. She has come to you for advice.

Required:

a. Under what conditions would it be appropriate for Summer to report the investment in Winter using proportionate consolidation? Identify the extent of control that would be implied by the use of proportionate consolidation and specific factors that would determine the extent of control.

b. Under what conditions would it be appropriate for Summer to report the investment in Winter using the equity method of accounting? Identify the specific factors that would determine that the equity method would be appropriate. Describe the circumstances or factors in which Summer would use the cost method instead of the equity method.

c. Under what conditions would it be appropriate for Summer to prepare consolidated financial statements? Identify the extent of control that would be implied by the use of consolidation and examples of factors that would make consolidation appropriate.