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:

Qualified Opinion

An auditor's opinion suggesting that the financial statements of a firm are fairly presented, except for a particular area or exception.

Adverse Opinion

An auditor's statement indicating that a company's financial statements are not presented fairly or in conformity with Generally Accepted Accounting Principles (GAAP).

Common Expenses

Recurring costs that are shared among entities within a business, typically for maintenance and administrative services.

Operating Profit

The profit earned from a firm's core business operations, excluding deductions of interest and taxes.