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.

---

Definitions:

Payable

Refers to an amount of money that is owed and should be paid, often within a specified period.

Instrument

A formal document that serves as a legal evidence of a fact or agreement, such as a contract, deed, will, or promissory note.

Promissory Notes

Written promises to pay a specified sum of money to a certain person or entity under agreed terms.

Negotiated

Discussed or arranged terms and conditions towards an agreement through a process of bargaining.