A subsidiary's declaration and distribution of a stock dividend has no effect on the Investment in Subsidiary Common Stock ledger account of a parent company that uses the equity method of accounting for the subsidiary's operations.

Question

Quizplus · Accepted Answer

Under the equity method, a parent company's investment in a subsidiary is adjusted for the parent's share of the subsidiary's profits and losses and dividends received. A stock dividend from the subsidiary merely reallocates part of the subsidiary's equity and does not affect the parent's share of the subsidiary's net assets or the carrying amount of the investment on the parent's books.

A Subsidiary's Declaration and Distribution of a Stock Dividend Has