Town Co Appropriately Uses the Equity Method to Account for Its

question 55

Multiple Choice

Town Co. appropriately uses the equity method to account for its investment in Country Corp. As of the end of 2021, Country's common stock had suffered a significant decline in fair value, which is expected to recover over the next several months. How should Town account for the decline in value?

• A) Town should switch to the fair-value method.
• B) No accounting because the decline in fair value is temporary.
• C) Town should decrease the balance in the investment account to the current value and recognize a loss on the income statement.
• D) Town should not record its share of Country's 2021 earnings until the decline in the fair value of the stock has been recovered.
• E) Town should decrease the balance in the investment account to the current value and recognize an unrealized loss on the balance sheet.

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Definitions:

Stimulates Controversy

Provokes debate or disagreement on a specific topic due to differing opinions, beliefs, or interests among individuals or groups.

Diffusion Of Responsibility

The ability of group members to share the burden of the negative consequences of a poor decision.

Risky Shifts

Risky shift phenomenon observes that groups tend to make decisions that are riskier than the individual decisions of group members due to the diffusion of responsibility and group influence.

Unambiguous Decisions

Decisions that are clear and definite, leaving no doubt or room for multiple interpretations.