If Posthorn Corporation Accounts for Its Investment in Stamp Company

question 18

Multiple Choice

If Posthorn Corporation accounts for its investment in Stamp Company at fair value through other comprehensive income, what entry will the company make to record the dividends received from Stamp Company for 2016?

• A)
• \[\begin{array} { | l | l | l | }
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Cash } & \$ 16,000 & \\
• \hline \text { Dividend Income } & & \$ 16,000 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | l | l | l | }
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Cash } & \$ 16,000 & \\
• \hline \text { Investment in Stamp Company } & & \$ 16,000 \\
• \hline
• \end{array}\]
• C)
• \[\begin{array} { | l | l | l | }
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Investment in Stamp Company } & \$ 16,000 & \\
• \hline \text { Dividend Income } & & \$ 16,000 \\
• \hline
• \end{array}\]
• D)No entry requireD.

---

Definitions:

Required Rate of Return

The minimal yearly percent yield needed to entice entities or individuals to channel funds into a specific investment or project.

Total Dollar Return

The total gain or loss on an investment over a specific period, combining both capital gains and any dividends or interest received.

Dividends

Payments made by a corporation to its shareholders, usually derived from the company's profits.

SML

Stands for the Security Market Line, which represents the expected return of a market portfolio as a function of systematic, or market, risk.