Diaz Ltd Acquired 35% of Saturn Ltd

question 34

Multiple Choice

Diaz Ltd. acquired 35% of Saturn Ltd. many years ago. At first, Saturn was profitable, but recently, it has been posting losses. Diaz believes that Saturn will be profitable again and has no plans to dispose of it, even though Diaz's share of the losses has exceeded its investment interest. Diaz uses the equity method. Which of the following statements is true?

• A)Diaz should continue to decrease its "Investment in Saturn" account.
• B)Diaz should put its share of Saturn's losses in a contra-account to its "Investment in Saturn" account, to be reduced by Saturn's future profits.
• C)Diaz should reduce its retained earnings directly by its share of Saturn's losses.
• D)Diaz should stop recognizing its share of Saturn's losses and not recognize Saturn's future profits until they exceed the unrecognized losses.

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Interest Rate

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