Asked by Melissa Borrero on Jun 08, 2024
Verified
Forest Ltd. accounts for its investment in Leeds Co. using the cost method. During the year, Forest received $10,000 in dividends from Leeds. How should Forest report these dividends on its separate-entity financial statements?
A) As an increase to the "Investment in Leeds Co." account on its statement of financial position
B) As a decrease to the "Investment in Leeds Co." account on its statement of financial position
C) As dividend income on its statement of changes in equity-retained earnings section
D) As dividend income in its statement of comprehensive income
Cost Method
An accounting practice of recording an investment at its original purchase cost, without reflecting changes in market value, unless a permanent decline in value is acknowledged.
Dividend Income
Income received from owning shares in a company, typically paid out of the company's profits.
Financial Statements
Documents that provide an overview of a business's financial condition, including balance sheet, income statement, and cash flow statement, among others.
- Elucidate the role of dividends in influencing investment outcomes.
Verified Answer
CN
Chrissy NosarJun 11, 2024
Final Answer :
D
Explanation :
Under the cost method, dividends received from the investee are recognized as dividend income in the investor's statement of comprehensive income.
Learning Objectives
- Elucidate the role of dividends in influencing investment outcomes.