Chapter 20, Problem 20.4E

Change in principle; change to the equity method

• LO20–2

The Crump Companies, Inc., has ownership interests in several public companies. At the beginning of 2018, the company’s ownership interest in the common stock of Silken Properties increased to the point that it became appropriate to begin using the equity method of accounting for the investment. The balance in the investment account was $31 million at the time of the change. Accountants working with company records determined that the balance would have been $48 million if the account had been adjusted to reflect the equity method.

Required:

1. Prepare the journal entry to record the change in accounting principle. (Ignore income taxes.)

2. Briefly describe other steps Crump should take to report the change.

3. Suppose Crump is changing from the equity method rather than to the equity method. How would your answers to requirements 1 and 2 differ?