[Sherrid]

I’m having a problem with Becker question #00344 from Chapter 3- topic #4

A company changes to the equity method from the cost method of accounting for an investment. Under the cost method

the div revenue is included in earnings – but investor does not get a share of income also- so why does Becker have this company adjust their investment account for the prior year with a 10% inclusion of net income when they didn’t earn it ?

Please help I need to understand this. Thanks

[Anonymous]

This falls under accounting changes.

A change to or from the equity method requires retrospecitve adjustment and restatement of all prior period statements, as if the equity method had been used since the initial acquisition. This is so the financial statements remain comparable from period to period.

[Author]

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