If the cost method is used to account for an investment in common stock
A) it is presumed that the investor has significant influence on the investee.
B) the earning of net income by the investee is considered a proper basis for recognition of income by the investor.
C) net income of the investee is not considered earned by the investor until dividends are declared by the investee.
D) the investment account may be at times greater than the acquisition cost.

Question

Quizplus · Accepted Answer

Under the cost method, the investor recognizes income only when dividends are declared by the investee, not when the investee earns net income.

If the Cost Method Is Used to Account for an Investment