If an investor company owns 25% of the shares of another business and exercises significant influence,dividends received from the investee are generally recorded by increasing the value of the investment account.

Question

Quizplus · Accepted Answer

Dividends received from an investee where the investor exercises significant influence (typically ownership of 20% to 50% of voting stock) are generally recorded as a reduction in the carrying amount of the investment, not an increase. This is because the investment is usually accounted for using the equity method, where dividends are considered returns on the investment.

If an Investor Company Owns 25% of the Shares of Another