Company J has a share investment (owns 60% of the shares, purchased in 20X1) and controls Company T, with a carrying amount of $200 000 at year end 20X4.Company T reports no increase in owner's equity between 20X0 and 20X5 but for the year ended 20X5 pays a cash dividend of $60 000, of which Company J receives $36 000.Which journal entry will Company J process in respect of this investment, assuming that AASB 127.38A is in effect during the period?
A)Debit to cash, credit to investment, $36 000
B)Debit to investment in associate, credit to share of associate's profit or loss, $36 000
C)Debit to cash, credit to dividend revenue, $36 000
D)Debit to investment, credit to dividend revenue, $36 000

Question

Quizplus · Accepted Answer

Since Company J controls Company T and owns 60% of its shares, the dividend received is recognized as dividend income. The correct journal entry is to debit cash for the amount received ($36,000) and credit dividend revenue for the same amount, reflecting the increase in cash and the income earned from the dividend.

Company J Has a Share Investment (Owns 60% of the Shares