When an Investor Currently Using the Fair Market Value Method

question 17

Multiple Choice

When an investor currently using the fair market value method acquires significant influence over the investee at mid-year, the investor should

• A)restate its investment in the investee by debiting the investment account and crediting Retained Earnings for its previous percentage of investee earnings (less dividends)for the period from the original date of acquisition to the date significant influence was obtained
• B)begin using the equity method from the date of acquiring significant influence and make no retroactive adjustments
• C)restate its investment in the investee by debiting the investment account and crediting Investment Income for its percentage of investee earnings for the period from the last financial statement until the date significant influence was obtained
• D)continue to use the fair value method until the end of the accounting period and then switch to the equity method in order to comply with the accounting conventions of consistency and conservatism

Understand the basic principles and tools of financial statement analysis.

Identify and apply horizontal and vertical analysis techniques.

Distinguish between intracompany, intercompany, and industry comparisons.

Comprehend how to calculate percentage changes and interpret their significance in financial analysis.

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Definitions:

IQR

Stands for Interquartile Range, a measure of variability in statistics that describes the middle 50% of values when ordered from least to greatest.

Range

Range is a measure of the spread or dispersion within a data set, calculated as the difference between the highest and lowest values in the set.

Median

The middle value in a data set when the values are arranged in ascending or descending order, or the average of the two middle numbers if the data set has an even number of observations.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data points.