Nero Ltd purchased a 30% shareholding in Bianco Ltd on 1 January 20X8 for $180 000. Bianco Ltd's assets were recorded at fair values and its owners' equity, totalling $520 000, was represented as follows:

Assuming that Nero Ltd applies the equity method in its own books, the entry to record the dividend receivable from Bianco Ltd at 31 December 20X9 would include:

Question

Nero Ltd purchased a 30% shareholding in Bianco Ltd on 1 January 20X8 for $180 000. Bianco Ltd's assets were recorded at fair values and its owners' equity, totalling $520 000, was represented as follows:

Assuming that Nero Ltd applies the equity method in its own books, the entry to record the dividend receivable from Bianco Ltd at 31 December 20X9 would include:

Quizplus · Accepted Answer

As per the equity method, the investor company records its share of the earnings of the associate in its own books when the earnings are reported by the associate. Therefore, the dividend received from the associate should be credited to the "investment in associate" account and not to the "dividend revenue" account. This is because the dividend is not revenue earned by Nero Ltd but rather a return on investment in the associate.

Nero Ltd Purchased a 30% Shareholding in Bianco Ltd on 1