Question

A parent company received dividends in excess of the parent company’s share of the subsidiary’s earnings subsequent to the date of the investment. How will the parent company’s investment account be affected by those dividends under each of the following accounting methods?

Answer 1

Answer: Regardless of the method that is applied, the investment account of the parent company will be reduced by the collection of dividends. In other words, if the cost method is applied, the investment account of the parent company will be reduced and if the Partial Equity Method is applied, the investment account of the parent company will be reduced.