A Change from the Cost Method to the Equity Method

question 21

Multiple Choice

A change from the cost method to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires:

• A) only a footnote disclosure.
• B) that the cumulative amount of the change be shown as a line item on the income statement, net of tax.
• C) that the change be accounted for as an unrealized gain included in other comprehensive income.
• D) retroactive restatement as if the investor always had used the equity method.

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Definitions:

Continuance Commitment

An employee's psychological attachment to an organization based on the costs that they perceive associated with leaving it.

Normative Commitment

The feeling of obligation an individual has to continue in an organization because of their personal values, ethics, or commitments.

Affective Commitment

An emotional attachment or sense of loyalty of an individual towards an organization, which influences their willingness to continue membership.

Forms of Commitment

Different types of psychological bonds that influence an individual's attachment and loyalty to an organization or cause.