When the Cost Method Is Used to Account for an Investment

question 166

True/False

When the cost method is used to account for an investment in stock, dividends received are accounted for as a reduction in the investment account.

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Definitions:

Capital Gains Yield

The rise in price of an investment or asset, represented as a percentage of the investment’s initial cost.

Dividends

Dividends are portions of a company's earnings decided by the board of directors to be distributed among shareholders, usually in the form of cash payments or shares.

Real Rate Of Return

The rate of return on an investment after adjusting for inflation, providing a clearer picture of the investment's true profitability.