A parent company that uses the cost method of accounting for the operations of a subsidiary prepares no journal entries to reflect the subsidiary's net income or loss for an accounting period.

Question

Quizplus · Accepted Answer

Under the cost method, the investment in the subsidiary is recorded at cost and is not adjusted for the subsidiary's net income or loss. Instead, dividends received from the subsidiary are typically the only transactions affecting the carrying amount of the investment.

A Parent Company That Uses the Cost Method of Accounting