Cost Method: Maybe the Parent Can Write Its Investment Back Up! Ponn Inc. owns 100% of Sonn’s outstanding common stock. In 2006, Ponn, which uses the cost method, wrote down to zero its $1,000,000 investment in Sonn because of Sonn’s severe ongoing concern problems. In 2007, Sonn had a remarkable recovery, and its stockholder’s equity at the end of 2007 was $1,500,000. Ponn now wishes to write the investment back up to $1,000,000.

Required 1 Under what circumstances, if any, could Ponn write the investment back up to its original cost of $1,000,000 and still comply with GAAP?

2 What account did the parent debit when it wrote the investment down to zero? What account would the parent credit to write the investment back up to $1,000,000?

3 Can you think of two ways that would result in the Investment account being valued at

$1,500,000 in accordance with GAAP?