If 10% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is the cost method. the equity method the preparation of consolidated financial statements. determined by agreement with whomever owns the remaining 90% of the stock. Napa Company owns a 10% investment in California Concepts Enterprises. During a 2005, California Concepts earned net income of $145,000 and paid dividends of $35,000. In accounting for the investment during 2005, Napa will credit Dividend Revenue, $3, 500. credit Investment Income, $14, 500. credit Revenue from Investment, $11, 500. debit Cash, $18,000. If the equity method is being used, cash dividends received are credited to Dividend Revenue. require no entry because investee net income has already been recorded at the proper proportion on the investor's books. are credited to the Stock Investments account. are credited to the Revenue from Investment in Stock account. Consolidated financial statements are prepared when a company owns of the common stock of another company. less than 20% between 20% and 50% more than 50% Short-term Stock Investments should be valued on the balance sheet at the lower of cost or fair value. the higher of cost or fair value. cost. fair value. Short-term investments are securities that are readily marketable and intended to be converted into cash within the next year. two years. Year or operating cycle, whichever is shorter. year or operating cycle, whichever is longer