Club CoAppropriately Uses the Equity Method to Account for Its Investment

question 36

Multiple Choice

Club Co.appropriately uses the equity method to account for its investment in Chip Corp.As of the end of 2018, Chip's common stock had suffered a significant decline in fair value, which is expected to recover over the next several months.How should Club account for the decline in value?

• A) Club should switch to the fair-value method.
• B) No accounting because the decline in fair value is temporary.
• C) Club should decrease the balance in the investment account to the current value and recognize a loss on the income statement.
• D) Club should not record its share of Chip's 2018 earnings until the decline in the fair value of the stock has been recovered.
• E) Club 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:

Discriminative Stimulus

A stimulus in the presence of which a particular response will lead to a reinforcement (or punishment) in operant conditioning, essentially signaling the availability of reinforcement.

Avoidance Learning

A learning process in which an individual learns a behavior or response to avoid an unpleasant or harmful stimulus.

Aversive Event

An unpleasant or undesirable event that causes a negative reaction in an individual, often used in psychology to study behaviors and conditioning.

Organism

A living entity that can function independently, including animals, plants, fungi, microorganisms, and in some contexts, viruses.