A Company Has Been Using the Equity Method to Account

question 94

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 control. 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:

Sales

The total amount of goods or services sold by a company within a specific period, generating revenue.

Standard Bikes

Refers to bicycles that adhere to specific industry norms and standards, typically meant for average or typical use scenarios.

Fixed Costs

Costs that do not vary with the level of output or sales over the short term, such as rent or salaries.

Variable Costs

Costs that vary in direct proportion to changes in production or sales volume, such as materials and labor.