On January 1, 2016, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2018, Dermot purchased 28% 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?

On January 1, 2016, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2018, Dermot purchased 28% 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?

 

  1. A) It must use the equity method for 2018 but should make no changes in its financial statements for 2017 and 2016.
  2. B) It should prepare consolidated financial statements for 2018.
  3. C) It must restate the financial statements for 2017 and 2016 as if the equity method had been used for those two years.
  4. D) It should record a prior period adjustment at the beginning of 2018 but should not restate the financial statements for 2017 and 2016.
  5. E) It must restate the financial statements for 2017 as if the equity method had been used then.