Cozza Limited acquired a 40% investment in Hodgo Limited for $1 000 000. Hodgo declared and paid a dividend of $20 000 during the current year. Cozza Limited does not prepare consolidated financial statements. Which of the following is the appropriate entry for Cozza to record this dividend?

Question

Quizplus · Accepted Answer

Cozza Limited uses the equity method to account for its investment in Hodgo Limited. Under the equity method, dividends received from the associate are recognized as a reduction in the carrying amount of the investment. Therefore, the appropriate entry for Cozza to record the dividend received would be to debit cash and credit the investment in associate for the same amount. Option A fulfills these requirements.

Cozza Limited Acquired a 40% Investment in Hodgo Limited for $1