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Change in principle; change to the equity method
The Trump Companies Inc. has ownership interests in several public companies. At the beginning of 2016, the company’s ownership interest in the common stock of Milken Properties increased to the point that it became appropriate to begin using the equity method of accounting for the investment. The balance in the investment account was $31 million at the time of the change. Accountants working with company records determined that the balance would have been $48 million if the account had been adjusted for investee net income and dividends as prescribed by the equity method.
Required:
1. Prepare the journal entry to record the change in principle.
2. Briefly describe other steps Trump should take to report the change.
3. Suppose Trump is changing from the equity method rather than to the equity method. How would your answers to requirements 1 and 2 differ?
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