Vince Company purchased as a long- term investment common stock of Gill Company. During the current year Gill Company earned $4,000,000 and paid dividends of $1,000,000. Assume that Vince Company owns 30% of Gill Company. The dividend paid by Gill Company will affect Vince Company by:

Question

Quizplus · Accepted Answer

Vince Company owns 30% of Gill Company, so it will receive 30% of the dividends paid, which is $300,000. This will increase Vince's cash by $300,000 and decrease the investment account by the same amount, as dividends are considered a return on investment.

Vince Company Purchased as a Long- Term Investment Common Stock