Cash dividends declared out of current earnings are distributed to an investor. How will the investor's investment account be affected by those dividends under each of the following accounting methods? Fair Value Method Equity Method

Question

Quizplus · Accepted Answer

Under the Fair Value Method, dividends received are recognized as income, and there is no adjustment to the investment account's carrying amount. Under the Equity Method, dividends reduce the carrying amount of the investment, as they are considered a return on investment.

Cash Dividends Declared Out of Current Earnings Are Distributed to an Investor