Several years ago, Einstein, Inc., bought 40 percent of the outstanding voting stock of Brooks Company. The equity method is appropriately applied. On August 1 of the current year, Einstein sold a portion of these shares.a. How does Einstein compute the book value of this investment on August 1 to determine its gain or loss on the sale?b. How should Einstein account for this investment after August 1?c. If Einstein retains only a 2 percent interest in Brooks so that it holds virtually no influence over Brooks, what figures appear in the investor’s income statement for the current year?d. If Einstein retains only a 2 percent interest in Brooks so that virtually no influence is held, does the investor have to retroactively adjust any previously reported figures?
Several years ago, Einstein, Inc., bought 40 percent of the outstanding voting stock of Brooks Company. The equity method is appropriately applied. On August 1 of the current year, Einstein sold a portion of these shares.
a. How does Einstein compute the book value of this investment on August 1 to determine its gain
or loss on the sale?
b. How should Einstein account for this investment after August 1?
c. If Einstein retains only a 2 percent interest in Brooks so that it holds virtually no influence over
Brooks, what figures appear in the investor’s income statement for the current year?
d. If Einstein retains only a 2 percent interest in Brooks so that virtually no influence is held, does
the investor have to retroactively adjust any previously reported figures?
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