Which of the following is not true when the fair value option is elected for an investment that would normally be accounted for under the equity method?
A) No journal entry need be made to recognize the investor's portion of the investee's net income.
B) Unrealized holding gains and losses on that investment are recognized in net income.
C) No journal entry need be made to recognize the investor's portion of dividends paid by the investee.
D) All of these answer choices are true.

Question

Quizplus · Accepted Answer

When the fair value option is elected for an investment that would normally be accounted for under the equity method, unrealized holding gains and losses are recognized in net income (B is true), and no journal entry is made to recognize the investor's portion of the investee's net income (A is true). However, dividends paid by the investee do affect the investor's accounting for the investment, typically reducing the carrying amount of the investment. Therefore, C is not true as it incorrectly suggests that dividends paid by the investee do not require a journal entry under the fair value option.

Which of the Following Is Not True When the Fair