Advanced Accounting Chapter 1 exam Graded A+

Advanced Accounting Chapter 1 exam Graded A+ A company should always use the equity method to account for an investment if - ANSWERIt has the ability to exercise significant influence over the operating policies of the investee On January 1, 2011, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2013, Dermot purchased 28% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for its change to the equity method? - ANSWERIt must restate the financial statements for 2012 and 2011 as if the equity method had been used for those two years. On January 1, 2013, Jordan Inc. acquired 30% of Nico Corp. Jordan used the equity method to account for the investment. On January 1, 2014, Jordan sold two- thirds of its investment in Nico. It no longer had the ability to exercise significant influence over the operations of Nico. How should Jordan have accounted for this change? - ANSWERJordan should use the fair-value method for 2014 and future years but should not make a retrospective adjustment to the investment account.