When an Investor Currently Using the Fair Value Method Acquires

question 23

Multiple Choice

When an investor currently using the fair value method acquires significant influence over the investee at mid-year, the investor should

• A) restate its investment in the investee by debiting the investment account and crediting Retained Earnings for its previous percentage of investee earnings less dividends) for the period from the original date of acquisition to the date significant influence was obtained.
• B) begin using the equity method from the date of acquiring significant influence and make no retroactive adjustments.
• C) restate its investment in the investee by debiting the investment account and crediting Investment Income for its percentage of investee earnings for the period from the last financial statement until the date significant influence was obtained.
• D) continue to use the fair value method until the end of the accounting period and then switch to the equity method in order to comply with the accounting conventions of consistency and conservatism.

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Definitions:

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