Question

A company has been using the fair-value method to account for its investment. The company now has the ability to significantly control the investee and the equity method has been deemed appropriate. 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 be recorded as revenue

Answer 1

Answer:

Option "C"is the correct answer to the following statement.

Explanation:

The retrospective method effect requires the development of new accounting procedures. In other terms, the retrospective method would affect the reporting of past time financial statements.

In this situation, the company will use the equity method at the place of the Fair-value method for calculating and control over their investment, so the above option is correct.