GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR Inc. uses the cost method, what effect would the above information have on GNR's investment in NMX account?

Question

Quizplus · Accepted Answer

Under the cost method, the investment account is not adjusted for the subsidiary's net income but only for dividends received. Therefore, GNR Inc.'s investment in NMX account would not be affected by NMX's net income but would only reflect the dividends received, which is not an adjustment to the investment account under the cost method but rather a reduction of the investment and recognition of dividend income.

GNR Inc Owns 100% of NMX Inc