A Company Has Been Using the Equity Method to Account

question 37

Multiple Choice

A company has been using the equity method to account for its investment. The company sells shares and does not continue to have significant influence. Which of the following statements is true?

• A) A cumulative effect change in accounting principle must occur.
• B) A prospective change in accounting principle must occur.
• C) A retrospective change in accounting principle must occur.
• D) The investor will not receive future dividends from the investee.
• E) Future dividends will continue to reduce the investment account.

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Definitions:

Transformational

Relating to or causing a significant change or shift in something, especially in a way that makes it better or more effective.

Transactional

An approach or interaction primarily focused on exchanges or transactions, often emphasizing efficiency and short-term gains.

Social Exchange Theory

A conceptual framework suggesting that social behavior is the result of an exchange process, aiming to maximize benefits and minimize costs in relationships.

LMX

Leader-Member Exchange, a theory emphasizing the dynamic relationships between leaders and their team members, focusing on how these relationships influence organizational outcomes.