Brighton Beach Limited owns 40% of Alberta Based Inc. Total cash dividends paid by Alberta Based Inc. for the year ending December 31, 2020, amount to $47,919. The journal entry prepared by Brighton Beach Limited on December 31, 2020, includes a:
A) debit to Long-Term Investment for $19,168
B) credit to Dividend Revenue for $19,168
C) credit to Long-Term Investment for $19,168
D) debit to Cash for $47,918

Question

Quizplus · Accepted Answer

Since Brighton Beach Limited owns 40% of Alberta Based Inc., they are entitled to receive 40% of the cash dividends paid by Alberta Based Inc. The amount of dividends received would be $47,919 x 0.4 = $19,168. Therefore, Brighton Beach Limited should credit their Long-Term Investment account for $19,168 to reflect the increase in value of their investment due to receiving the dividends. They would not debit their Long-Term Investment account since their investment has not decreased in value. They would also not credit their Dividend Revenue account, since they are not recognizing the dividends as revenue; rather, the dividends are increasing the value of their investment. Finally, they would not debit their Cash account since they have not received any cash; they have only received an increase in the value of their investment.

Brighton Beach Limited Owns 40% of Alberta Based Inc