XYZ buys a 24 per cent share in ABC for $80 million. ABC's total net profit is $50 million and it pays $4 million in dividends to XYZ. Using the cost method, what would be the revenue and investment amounts at year-end for this investment?
A) $4 million and $80 million
B) $4 million and $84 million
C) $12 million and $80 million
D) $12 million and $92 million

Question

Quizplus · Accepted Answer

Under the cost method, only the actual dividends received from the investment are recorded as revenue. Therefore, the revenue would be $4 million, the amount of the dividends received. The investment amount remains at the initial cost of $80 million, as the cost method does not adjust the investment's carrying amount for the investor's share of the investee's profits or losses.

XYZ Buys a 24 Per Cent Share in ABC for $80