On January 1, 2018, Dermot Company purchased 12% of the voting common stock of Horne Corp. On January 1, 2019, Dermot purchased 18% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method? A) It must use the equity method for 2018 but should make no changes in it's financial statements for 2018 and 2019 B) It should prepare consolidated financial statements for 2019 C) No restatement for the financial statements for 2018 and 2019 as if the equity method had been used for those two years. Just the going forward year will changed to the equity method D) It should record a prior period adjustment at the beginning of 2018 but should not restate the financial statements for 2018 and 2019 E) It must restate the financial statements for 2018 as if the equity method had been used then
On January 1, 2018, Dermot Company purchased 12% of the voting common stock of Horne Corp. On January 1, 2019, Dermot purchased 18% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method?
A) It must use the equity method for 2018 but should make no changes in it's financial statements for 2018 and 2019
B) It should prepare consolidated financial statements for 2019
C) No restatement for the financial statements for 2018 and 2019 as if the equity method had been used for those two years. Just the going forward year will changed to the equity method
D) It should record a prior period adjustment at the beginning of 2018 but should not restate the financial statements for 2018 and 2019
E) It must restate the financial statements for 2018 as if the equity method had been used then
Accounting for investments involves recording and reporting the value and income of an entity's investments in other companies, securities, or financial instruments. The appropriate accounting method depends on the level of ownership and the degree of influence the investor has over the investee.
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