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 owned 80% of NMX instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method?

Question

Quizplus · Accepted Answer

Under the cost method, the investment account is only adjusted for the receipt of dividends. Since the ownership percentage does not affect the recording of dividends under the cost method, changing the ownership from 100% to 80% would have no effect on GNR's investment in NMX account.

GNR Inc Owns 100% of NMX Inc