On January 1, 2014, SydneyInc. acquired 30% of Elle Corp. Sydney used the equity method to account for the investment. On January 1, 2015, Sydney sold two-thirds of its investment in Elle. It no longer had the ability to exercise significant influence over the operations of Elle. How should Sydneyhave accounted for this change?
1. Sydney should restate the prior years' financial statements and change the balance in the investment account as if the fair-value method had been used since 2014.
2. Sydney has the option of using either the equity method or the fair-value method for 2014 and future years.
3. Sydney should use the fair-value method for 2015 and future years but should not make a retrospective adjustment to the investment account.
4. Sydney should report the effect of the change from the equity to the fair-value method as a retrospective change in accounting principle.