medium · Financial Accounting stockholders-equity
In a 'Step Acquisition,' a company increases its ownership in an investee from 10% (passive) to 30% (significant influence).
According to US GAAP, how should the previously held 10% interest be treated at the date of the change to the equity method?
- It is remeasured to fair value, with any gain or loss recognized in net income.
- Any unrealized gains in AOCI are transferred directly to Retained Earnings.
- The historical cost is added to the cost of the new 20% interest to form the new basis.
- It is adjusted retroactively as if the equity method had always been applied.
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