Slanted Building Supplies purchased 32 percent of the voting shares of Flat Flooring Company in March 20X3. On December 31, 20X3. the officers of Slant Building Supplies indicated they needed advice on whether to use the equity method or to carry the investment at fair value in reporting their ownership in Flat FIooring.

Required:

A. What factors should be considered in determining whether equity-method reporting is appropriate?

B. Which of the two approaches is likely to show the larger reported contribution to Slanteds earnings in 20X4? Explain.