Dividends received by a parent from a subsidiary are accounted for:

Question

Quizplus · Accepted Answer

Dividends are considered as a return on investment and are recorded as revenue in the parent's financial statements. This is because the parent company has been recording its investment in the subsidiary using the cost method, which only recognizes dividends as income. The cost method only recognizes dividends and not any other earnings of the subsidiary. Therefore, dividends received by a parent from a subsidiary are accounted for as revenue to the parent. Option B is incorrect as dividends received are not treated as transfer to cash as it ignores the recognition of revenue. Option C is incorrect as dividends received are not linked to the parent's cost of sales. Option D is incorrect as there is a specific accounting treatment for dividends received by a parent from a subsidiary.

Dividends Received by a Parent from a Subsidiary Are Accounted