Under the Equity Method of Accounting for Long-Term Investments in Common

question 239

Multiple Choice

Under the equity method of accounting for long-term investments in common shares, when a dividend is received from the investee company,

• A) the Dividend Revenue account is credited.
• B) the Investment in Associate account is increased.
• C) the Investment in Associate account is decreased.
• D) no entry is necessary.

---

Definitions:

Net Present Value

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period of time.

Variable Cost

Costs that vary directly with the level of production or service volume, such as raw materials and direct labor expenses.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used to assess the profitability of an investment.

Monthly Interest Rate

The percentage of interest that is charged or earned on a loan or investment over a month.