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Accounting for the decline in value

6. Club Co. appropriately uses the equity method to account for its investment in Chip Corp. As of the end of 2004, Chip's common stock had suffered a significant decline in market value, which is expected to be recovered over the next several months. How should Club account for the decline in value?
A) Club should switch to the fair-value method.
B) No accounting because the decline in market value is temporary.
C) Club should decrease the balance in the investment account to the current value and recognize a loss on the income statement.
D) Club should not record its share of Chip's 2004 earnings until the decline in the market value of the stock has been recovered.
E) Club should decrease the balance in the investment account to the current value and recognize an unrealized loss on the balance sheet.

Solution Summary

This solution explains how a firm should account for value under several different circumstances, addressed fair-value method, temporary decline, Chip's 2004 earnings and stock

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