Prior to gaap for equity method investments, firms often used the cost method to account for their unconsolidated investments in common stock regardless of the presence of significant influence. the cost method employed the cash basis of income recognition. when the investee declared a dividend, the investor recorded "dividend income." the investment account typically remained at its original cost—hence the term cost method.

many firms' compensation plans reward managers based on reported annual income. how might the use of the cost method of accounting for significant influence investments have resulted in unintended wealth transfers from owners to managers? do the equity or fair-value methods provide similar incentives?

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.