Racer Corp.purchased all of the common stock of Tangiers Co.several years ago.Tangiers maintained its incorporation.Balances in which of Racer's accounts would vary between the equity method and the initial value method?

Question

Quizplus · Accepted Answer

Under the equity method, the investment in Tangiers Co. account would change due to Racer's share of Tangier's net income or loss, and the equity in subsidiary earnings account would be used to record this share. On the other hand, under the initial value method, the investment account would initially record the cost paid to acquire Tangiers Co. and would only change if Racer purchases additional stock in Tangiers or if dividends are received. Therefore, both the Investment in Tangiers Co. and Equity in Subsidiary Earnings accounts would vary between the two methods. The Retained Earnings account, on the other hand, would not be affected by the choice of method unless dividends are paid by Tangiers Co. and received by Racer. Therefore, the correct answer is C: Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.