Distinguish between the cost and equity methods of accounting for investments in stocks.

Under the cost method an investment is originally recorded and reported at cost. Dividends are recorded as revenue. In subsequent periods it is adjusted to fair value and an unrealized holding gain or loss is recognized and included in income (trading security) or as a separate component of stockholders' equity (available-for-sale security). Under the equity method the investment is originally recorded and reported at cost; subsequently the investment account is adjusted during each period for the investor's share of the earnings or losses of the investee. The investor's share of the investee's earnings is recognized in the earnings of the investor. Dividends received from the investee are reductions in the carrying amount of the investment.