The market price of the common stock of an investee company increased during the year. How...
The market price of the common stock of an investee company increased during the year. How will the investor’s investment account be affected by the increase in market price of that common stock under each of the following accounting methods? Assume the fair value option is not elected. Cost adjusted for fair value method Equity method A. No effect No effect B. No effect Increase C. Increase No effect D. Increase Increase Question 6 options: 1) A. 2) B. 3) C. 4) D.
Homework Answers
Solution:
Under the cost adjusted to fair value method, investment should be valued at fair value, further in equity method, fair value is not considered for accounting of investment.
Therefore
investor’s investment account will be increased for increase in market price of common stock of investee company under cost adjusted to fair value method and no effect on investment account under equity method.
Hence option C is correct.
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