bart company purchased a 30 % interest in simpson corporation on january 1,2004,
ID: 2434739 • Letter: B
Question
bart company purchased a 30 % interest in simpson corporation on january 1,2004, and bart accounted for its investment in simpson under the equity method for the next 3 years. on january 1,2007, bart sold one - half of its interest in simpson after which it could no longer exercise significant influence over the simpson. bart should:a. continue to account for its remaining investment in dak under the equity method for the sake of consistency.
b. adjust the investment in simpson account to one-half of its original amount and account for the remaining 15% interest using the equity method.
c. account for the remaining investment under the cost method,using the investment in simpson account balance immediately after the sale as the new cost basis.
d. adjust the investment account to one-half of its original amount(one-half of the purchase price in 2004), and account for the remining 15% investment under the cost method.
Explanation / Answer
bart company purchased a 30 % interest in simpson corporation on january 1,2004, and bart accounted for its investment in simpson under the equity method for the next 3 years. on january 1,2007, bart sold one - half of its interest in simpson after which it could no longer exercise significant influence over the simpson. bart should: c. account for the remaining investment under the cost method,using the investment in simpson account balance immediately after the sale as the new cost basis.
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