On January 1, 2016, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2018, Dermot purchased 28% of Hornes voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method?

Multiple Choice

• It must use the equity method for 2018 but should make no changes in its financial statements for 2017 and 2016.

• It must restate the financial statements for 2017 as if the equity method had been used then.

• It must restate the financial statements for 2017 and 2016 as if the equity method had been used for those two years.

  Incorrect

• It should prepare consolidated financial statements for 2018.

• It should record a prior period adjustment at the beginning of 2018 but should not restate the financial statements for 2017 and 2016.