Question

If a 30% acquisition is made at a price above book value due to an undervalued patent and the investor has significant influence over he investee, what will be the relationship between the Equity Investment account and the investee's stockholders' equity? Select one: A. The Equity Investment account balance will equal 30% of investee's stockholders' equity at date of acquisition, plus the unamortized cost of the patent. B. The Equity Investment account will remain at original cost even as the investee's stockholders' equity increases. C. There is no particular relationship. D. The Equity Investment account balance will equal 30% of investee's stockholders' equity throughout the life of the investment.

Answer 1

A. The Equity Investment account balance will equal 30% of investee's stockholders' equity at date of acquisition, plus the unamortized cost of the patent.