Under the Initial Value Method, When Accounting for an Investment

question 38

Multiple Choice

Under the initial value method, when accounting for an investment in a subsidiary,

• A) Dividends received by the subsidiary decrease the investment account.
• B) The investment account is adjusted to fair value at year-end.
• C) Income reported by the subsidiary increases the investment account.
• D) The investment account remains at initial value.
• E) Dividends received are ignored.

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Definitions:

Dividend

A fraction of a corporation's profits allocated to its stockholders, often as cash or more shares.

Required Return

This is the minimum return an investor expects to receive on an investment, factor in the risk involved.

Equity Securities

Financial assets that represent ownership in a corporation, such as stocks, entitling holders to a share of the company's profits and assets.