Final answer:
Once Dermot achieved significant influence over Horne in 2013, it should restate the financial statements for 2012 and 2011 to reflect the use of the equity method for those periods, as per accounting standards, making Option C the correct approach. Option C, restating the financial statements for 2012 and 2011, is the appropriate answer.
Step-by-step explanation:
When Dermot Company purchased an additional 28% of the voting common stock of Horne Corp on January 1, 2013, and achieved significant influence over Horne, Dermot must account for the investment using the equity method. However, the question is how Dermot should account for the change to the equity method with respect to the previous years, where the company owned a smaller percentage of Horne's voting common stock.
Option A, which states Dermot must use the equity method for 2013 but make no changes for 2012 and 2011, is incorrect because when significant influence is achieved, retrospective application is required for the periods in which the investment was held, but significant influence was not applied.
Option B suggests preparing consolidated financial statements. This is typically required when control (usually more than 50% ownership) is achieved, which is not the case here.
Option C suggests that Dermot must restate the financial statements for 2012 and 2011 as if the equity method had been used in those years. This is the correct approach under accounting standards that require retrospective application once significant influence is achieved.
Therefore, Option C, restating the financial statements for 2012 and 2011, is the appropriate answer since it adheres to accounting principles that mandate adjustments for prior periods once the equity method of accounting becomes applicable.