If an investor company owns 35% of the common stock of another business,the investor:
A)receives 35% of the investee's net income in cash.
B)reports the Equity-method Investment Revenue on the balance sheet.
C)records dividends received as investment revenue.
D)increases its Equity-method Investment account for 35% of net income reported by the investee company.

Question

Quizplus · Accepted Answer

When an investor company owns 35% of the common stock of another business, it uses the equity method of accounting. Under the equity method, the investor company recognizes its share of the investee's net income on its income statement and increases its Equity-method Investment account for 35% of net income reported by the investee company. The investor also records dividends received as dividend income, not investment revenue. Therefore, options A, B, and C are incorrect.

If an Investor Company Owns 35% of the Common Stock