When the cost method is used to account for an investment, the carrying value of the investment is affected by
A) the dividend distributions of the investee
B) the periodic net income of the investee
C) the earnings and dividend distributions of the investee
D) neither the earnings nor the dividends of the investee

Question

Quizplus · Accepted Answer

Under the cost method, the carrying value of the investment remains the same unless the investor decides to adjust the carrying value for impairment, changes in fair value, or any other reason. The earnings and dividend distributions of the investee do not affect the carrying value of the investment under the cost method.

When the Cost Method Is Used to Account for an Investment