Question

An investor company uses the equity method to account for its investment in 25% of the outstanding common stock of an investee company. How should cash dividends received from the investee affect the financial statements of the investor

Select one:
a. A decrease in the Equity Investment account
b. A decrease in retained earnings
c. An increase in the Equity Investment account
d. Dividend income

Answer 1

Option A is correct.

A decrease in the Equity Investment account

Step-by-step explanation:

Dividend received amount decreases the investment account. Net income interest in investee account is added to the investment account.