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:

Inoculation Theory

A theory suggesting that exposure to a weakened form of an argument strengthens people's ability to refute stronger, future arguments.

Cognitive Dissonance

A psychological state in which an individual experiences discomfort or conflict due to holding contradictory beliefs, attitudes, or values at the same time.

Social Judgment

The process by which individuals evaluate and form opinions about other people and social situations.

Rejection-Then-Retreat

A persuasion technique where a larger request is made knowing it will be rejected in order to increase the likelihood that a smaller subsequent request will be accepted.