If in the consolidation process the investment in subsidiary account is increased or decreased by the amount determined by the following calculation: $$\text { (Parent ownership percentage } ) \times ( \text { Current balance in subsidiary retained eamings minus the subsidiary's retained eamings balance on the date of acquisition } )$$ the investment account is being converted from

A)cost to simple equity.
B)cost to sophisticated equity.
C)simple equity to sophisticated equity.
D)simple equity to cost.

Question

If in the consolidation process the investment in subsidiary account is increased or decreased by the amount determined by the following calculation:

\text { (Parent ownership percentage } ) \times ( \text { Current balance in subsidiary retained eamings minus the subsidiary's retained eamings balance on the date of acquisition } )

the investment account is being converted from

A)cost to simple equity.
B)cost to sophisticated equity.
C)simple equity to sophisticated equity.
D)simple equity to cost.

Quizplus · Accepted Answer

This calculation adjusts the investment account to reflect changes in the subsidiary's retained earnings since acquisition, aligning with the simple equity method. In the simple equity method, the investment account is adjusted for the investor's share of the subsidiary's earnings or losses post-acquisition, moving from a cost basis (where the investment is recorded at cost and not adjusted for the subsidiary's performance) to a simple equity basis.

If in the Consolidation Process the Investment in Subsidiary Account