Question
Husky acquired 25% of Cougar on January 1, 2020, and appropriately accounted for this investment using the Equity Method. One year later, on January 1,
Husky acquired 25% of Cougar on January 1, 2020, and appropriately accounted for this investment using the Equity Method. One year later, on January 1, 2021 Husky acquired and additional 50%, so that it now has control of Cougar and will prepare consolidated financial statements. In a step-acquisition such as this, how should the original 25% ownership be valued as of January 1, 2021, the date that Husky gains control of Cougar?
answer choices:
A. It should be adjusted to fair value at the date Husky gains control of Cougar, with the resulting gain or loss reported as a component of Other Comprehensive Income.
B. It should be maintained at the value previously calculated under the Equity Method of accounting.
C. It should be restated to its original cost on January 1, 2020
D. It should be adjusted to fair value at the date Husky gains control of Cougar, with a resulting gain or loss recorded in Net Income.
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