When the Cost Method Is Used to Account for an Investment

question 45

Multiple Choice

When the cost method is used to account for an investment, the carrying value of the investment is affected by

• A) the dividend distributions of the investee
• B) the periodic net income of the investee
• C) the earnings and dividend distributions of the investee
• D) neither the earnings nor the dividends of the investee

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity of a business.

Operating Cash Inflows

The money received by a company from its operational activities, such as sales revenue, during a specific period.

Discount Rate

In finance, the rate used to calculate the present value of future cash flows, reflecting the risk and time value of money.

Salvage Value

This refers to the projected remaining worth of an asset upon reaching the conclusion of its operational lifespan.