Anzelmo Corporation invested in Jones Manufacturing by purchasing a 10% interest in the company.Anzelmo had no significant influence in Jones.Over time,Anzelmo acquired more shares in Jones,and in 2016,Anzelmo's president became a member of the board of directors when its ownership interest reached 30% of Jones.The cost basis of its investment is $2,000,000.Under the equity method,the valuation of the investment would be $2,400,000.The fair value of the investment is $2,600,000.What is the amount of the adjustment to the investment account necessary to properly record the change in accounting principal?

Question

Quizplus · Accepted Answer

The adjustment is needed to increase the investment account to its fair value of $2,600,000, which is $200,000 higher than the equity method valuation of $2,400,000. Therefore, a debit adjustment of $400,000 ($200,000 x 2) is necessary to properly record the change in accounting principle.

Anzelmo Corporation Invested in Jones Manufacturing by Purchasing a 10