You have just taken the position of controller for Solo, Inc., a large transportation company. The CFO

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Question:

You have just taken the position of controller for Solo, Inc., a large transportation company. The CFO has questions for you concerning an investment in equity securities of Bacca Company. Solo used to own 30% of Bacca, but about a year ago sold a significant number of shares.

Here is the pertinent information:

Solo, Inc. was a 30% owner of Bacca Company, holding 210,000 shares of Bacca’s common stock on December 31, 2020. The investment account had the following entries:

Investment in Bacca Company
1/1/19 Cost	3,180,000	12/6/19 Dividend Received	150,000
12/31/19 Share of Income	390,000	12/5/20 Dividend Received	240,000
12/31/20 Share of Income	510,000

On January 2, 2021, Solo sold 126,000 shares of Bacca for $3,440,000, thereby losing its significant influence. During the year 2021, Bacca experienced the following results of operations and paid the following dividends to Solo.

2021	Bacca Income (Loss)	Dividends paid to Solo
2021	$1,480,000	$50,400

At December 31, 2021, the fair value of Bacca shares held by Solo is $375,000. Presume this is the first reporting date since the January 2 sale. Solo has a 12/31 year-end.

The CFO’s questions follow:

When investor level of ownership falls below that necessary for use of the equity method (e.g. 20%), what changes take place? (Hints: Does the company change its method for accounting for the investment? If so, how? Is the treatment retrospective or prospective?)
What happens at the next reporting date (12/31/21)? (Hint: What is the accounting treatment for this investment at the next balance sheet date?)
What all is reported on the balance sheet, income statement, and statement of comprehensive income for Solo, Inc. at 12/31/2021 with regards to this investment in Bacca Company?

You may utilize your textbook along with FASB’s Accounting Standards Codification for support for your answers. (Hint: start with Topic 323; it will lead you to the other appropriate Topic needed.)