A corporation purchased 20% of the outstanding shares of common stock of Ken's Canaries as an investment. Ken's Canaries had a banner year with profits and paid cash dividends. What would the corporation that holds the stock do to record the transaction?

Question

Quizplus · Accepted Answer

The corporation holding the stock would debit their Cash account and credit the Investment, Ken's Canaries account.
Key Takeaway: An investor's share of a corporation's net income or net loss is recorded as a revenue or a loss for the period. In this case, the cash dividend increased the Cash account with a debit, and decreased the investment account with a credit.

A Corporation Purchased 20% of the Outstanding Shares of Common