Question

When the investor's level of influence changes, it may be necessary to change to the equity method from another method. When the level of ownership rises from less than 20% to a range of 20% to 50%, the equity method typically would become appropriate and the investment account balance should be:

Answer 1

The investment account balance should be retrospectively adjusted.

Step-by-step explanation:

Since the equity method would probably be appropriate, it should be adjusted retrospectively as if the equity method had been used for the previous years.

A retrospective adjustment includes changing previous accounting data on the basis of a different accounting principle, as if it had always been implemented.

By doing so, it will be carried over as if there is no adjustment and then reflect its fair value on transferred date before adjusting it to its amortized cost.