Income from passive investments in equity securities is recognized when:

Question

Quizplus · Accepted Answer

Income from passive investments in equity securities is recognized when dividends are declared by the investee. This is because the declaration of dividends is a sign of the investee's intention to distribute the profits to its shareholders, including the holder of the equity security. While profits reported by the investee may also indicate the possibility of dividends, they do not necessarily mean that dividends will be paid. Adjusting entries for fair value adjustments are made to reflect changes in the value of the investment but do not affect the recognition of income. Dividends received may also indicate the possibility of income, but the uncertainty of payment means that recognition should only occur when it is received.

Income from Passive Investments in Equity Securities Is Recognized When