Asked by Kawinthida Kanajoth on Jun 02, 2024
Verified
Under the equity method the investor records dividends received by crediting
A) Dividend Revenue.
B) Investment Income.
C) Revenue from Investment.
D) Stock Investments.
Equity Method
An accounting technique used by firms to assess the profits earned from their investments in other companies, by reporting these profits proportional to their ownership percentage.
Dividend Revenue
Dividend revenue refers to the income earned by investors or companies from holding shares of other entities that pay dividends.
- Demonstrate knowledge of the equity method for accounting for investments and its application when significant influence is exerted over the investee.
Verified Answer
JD
Jitesh DeshpandeJun 06, 2024
Final Answer :
D
Explanation :
Under the equity method, dividends received from the investee reduce the carrying amount of the investment on the investor's books. Therefore, when dividends are received, the investor credits (decreases) the "Stock Investments" account, rather than recognizing dividend income. This approach reflects the investor's share of the investee's earnings that have already been recognized in the investor's income, and the dividends are considered a return of investment rather than income.
Learning Objectives
- Demonstrate knowledge of the equity method for accounting for investments and its application when significant influence is exerted over the investee.
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