Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method?
A) Goodwill, Investment in Tangiers Co., and Retained Earnings.
B) Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C) Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D) Common Stock, Goodwill, and Investment in Tangiers Co.
E) Expenses, Goodwill, and Investment in Tangiers Co.

Question

Quizplus · Accepted Answer

Only Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings would vary between the equity method and the initial value method. Goodwill is initially recognized under both methods, and common stock is not affected by either method. Expenses and goodwill are not affected by the method of accounting for the subsidiary investment.