Cash Dividends Declared Out of Current Earnings Are Distributed to an Investor

question 20

Multiple Choice

Cash dividends declared out of current earnings are distributed to an investor. How will the investor's investment account be affected by those dividends under each of the following accounting methods? $\begin{array}{l}\begin{array}{|c|c|c|}\hline&\text { Cost Method }&\text { Equity method }\\\hline 1&\text { No effect } & \text { No effect } \\\hline 2&\text { No effect } & \text { Decrease } \\\hline 3&\text { Decrease } & \text { No effect } \\\hline 4&\text { Decrease } & \text { Decrease } \\\hline\end{array}\end{array}$

• A) Choice 1
• B) Choice 2
• C) Choice 3
• D) Choice 4

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Definitions:

Marginal Costs

The increase in total cost that arises from an extra unit of production.

Fixed Factors

Inputs in production that cannot be altered in the short term, such as buildings and machinery.

Output

The amount of goods and services produced by a business, industry, or economy.

Marginal Cost

The cost added by producing one additional unit of a product or service, important for decision-making in resource allocation.