Blanton Corporation purchased 15% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives?

Question

Quizplus · Accepted Answer

When Blanton Corporation receives a cash dividend from Worton Corporation, it should record it as a revenue by debiting Cash and crediting Dividend Revenue. This is because Blanton Corporation is holding the investment as a financial asset, and dividends received from the investee are recognized as revenue. Option A is incorrect because it would decrease the carrying value of the investment rather than recognizing revenue. Option C is also incorrect because income of Worton Corporation is not a recognized account under US GAAP. Option D is incorrect because it would increase the carrying value of the investment, which is not appropriate when receiving dividends.

Blanton Corporation Purchased 15% of the Outstanding Shares of Common