Suppose Pixar plans to buy about 20% of the common shares of a small animation company that recently went public. The management of Pixar believes that patents developed by the software company will make the company very valuable in a year or two. Near-term profits may not be high, but large increases in the share price are likely. No dividends are expected. How would the choice of accounting method, the market-value method or the equity method, affect Pixar’s total assets reported on its balance sheet in the next couple years if its expectations about the software firm come true?
How would Pixar achieve its preferred accounting method? Explain.