Thomas C. Company holds a 15% equity investment in Kayak Zone. Fred W. Company holds a 30% of Kayak Zone's stock. On November 1, 2016, Kayak Zone declares and pays dividends to its stockholders.
How will the dividend affect each company's investment account?

Question

Quizplus · Accepted Answer

Thomas C. Company should use the fair value method to account for its investment in Kayak Zone, so its dividend will not affect its investment account. Fred W. Company should use the equity method to account for its investment, so its dividend will be deducted from its investment account and added to cash.

Thomas C Company Holds a 15% Equity Investment in Kayak Zone