medium · Financial Accounting accounting-cycle-financial-statements
Delta Inc. increases its ownership in Sigma Co. from 15% to 35% on July 1. Previously, Delta used the fair value method. Sigma has a carrying value of $2,000,000 and a fair value of $3,000,000 on July 1.
According to ASC 805 logic for step acquisitions, what is the first step Delta must take regarding its initial 15% stake?
- Remeasure the 15% stake to its current fair value and recognize any gain or loss in the income statement.
- Adjust the 15% stake retrospectively as if the equity method had been used since the original purchase date.
- Transfer the cumulative unrealized gains from OCI directly into Retained Earnings without hitting Net Income.
- Carry forward the 15% stake at its original historical cost and add the cost of the new 20% stake.
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