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.

---

Definitions:

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

Net Loss

The result when a company's total expenses exceed its total revenues during a specific period, indicating a negative earnings performance.

Balance Sheet Credit

An entry on the right side of a balance sheet, indicating liabilities, equity, or income.

Depreciation Expense

This represents the systematic allocation of the cost of an asset over its useful life, reflecting its consumption, wear and tear, or obsolescence.