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

question 53

Multiple Choice

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

• A) the investor's Investment account is increased.
• B) the Dividend Revenue account is increased.
• C) the investor's Investment account is decreased.
• D) no entry is necessary.

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Definitions:

Earnings Per Share

A financial ratio that indicates the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of the company's profitability.

Dividend Yield

A financial ratio that indicates how much a company pays out in dividends each year relative to its stock price.

Price-Earnings Ratio

A valuation metric that compares a company's current share price to its per-share earnings.

Return On Total Assets

A financial ratio that indicates how effectively a company is using its assets to generate profit, measured by dividing net income by total assets.