At the beginning of 2011 , Trichet Inc. purchased a $ 27 \% $ stake in the ordinary shares of Papandreoul Company at a cost of $ € 4,000,000 $. After applying the equity method, the Investment in Papandreou account has a balance of $ € 4,020,000 $. At December 31,2011 the fair value of the investment is $ € 4,130,000 $. Which of the following values is acceptable for Trichet to report for the investment in its December 31, 2011 statement of financial position?
I. $ € 4,000,000 $
II. $ € 4,020,000 $
III. $ € 4,130,000 $

Question

Quizplus · Accepted Answer

The equity method is used to account for investments in which the investor has significant influence over the investee. Under the equity method, the investment is initially recorded at cost and then adjusted each period to reflect the share of the investor's net income or loss. The fair value of the investment is not considered under the equity method. Therefore, the only acceptable value for Trichet to report for the investment in its December 31, 2011 statement of financial position is €4,020,000, which is the balance of the Investment in Papandreou account after applying the equity method.

At the Beginning of 2011 , Trichet Inc 27% 27 \% 27%

At the Beginning of 2011 , Trichet Inc $27 \%$