Cash dividends declared out of current earnings are distributed to an investor.How will the investor's investment account be affected by those dividends under each of the following accounting methods? $$\begin{array} { | l | l | l | }
\hline & \text { Cost Method } & \text { Equity Method } \
\hline 1 & \text { No effect } & \text { No effect } \
\hline 2 & \text { No effect } & \text { Decrease } \
\hline 3 & \text { Decrease } & \text { No effect } \
\hline 4 & \text { Decrease } & \text { Decrease } \
\hline
\end{array}$$

Question

Cash dividends declared out of current earnings are distributed to an investor.How will the investor's investment account be affected by those dividends under each of the following accounting methods? $$\begin{array} { | l | l | l | } 
\hline & \text { Cost Method } & \text { Equity Method } \
\hline 1 & \text { No effect } & \text { No effect } \
\hline 2 & \text { No effect } & \text { Decrease } \
\hline 3 & \text { Decrease } & \text { No effect } \
\hline 4 & \text { Decrease } & \text { Decrease } \
\hline
\end{array}$$

Quizplus · Accepted Answer

Under the cost method, dividends do not affect the investment account. Under the equity method, dividends decrease the investment account as they are considered a return on investment.

Cash Dividends Declared Out of Current Earnings Are Distributed to an Investor.How