Club Co. appropriately uses the equity method to account for its investment in Chip Corp. As of the end of 2018, Chip's common stock had suffered a significant decline in fair value, which is expected to recover over the next several months. How should Club account for the decline in value?
A. Club should switch to the fair-value method.
B. Club should not record its share of Chip's 2018 earnings until the decline in the fair value of the stock has been recovered.
C. Club should decrease the balance in the investment account to the current value and recognize an unrealized loss on the balance sheet.
D. No accounting because the decline in fair value is temporary.
E. Club should decrease the balance in the investment account to the current value and recognize a loss on the income statement.
Answer: D
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