For each of the following accounting methods, indicate how the investor's investment account will be affected by the investor's share of the investee's earnings after the date of acquisition
Fair Value Option Equity Method
A)No effect No effect
B)Increase Increase
C)Increase No effect
D)No effect Increase

Question

For each of the following accounting methods, indicate how the investor's investment account will be affected by the investor's share of the investee's earnings after the date of acquisition ​
​ Fair Value Option Equity Method
A)No effect No effect
B)​Increase Increase
C)​Increase No effect
D)​No effect Increase

Quizplus · Accepted Answer

Under the Fair Value Option, the investment is reported at fair value with changes in fair value recognized in earnings, so the investor's share of the investee's earnings does not affect the investment account. Under the Equity Method, the investor's investment account is increased by their share of the investee's earnings after the date of acquisition.

For Each of the Following Accounting Methods, Indicate How the Investor's