Question $8$

Investors in equity securities use the cost, equity, or consolidation method. The equity method is required when significant influence is attained. Consolidation is required when control exists.

a$.$ Explain the difference between the equity method vs$.$ the cost$/$fair value method in terms of the impact to the investor of $(1)$ income on the income statement and $(2)$ the investment account on the balance sheet.

b$.$ When and why must we prepare consolidated financial statements?