When the cost method of accounting for long-term investment in shares is employed, the receipt of a dividend on those shares is recorded as a credit to:
A) the investment asset.
B) dividend revenue.
C) retained profits.
D) None of the above.

Question

Quizplus · Accepted Answer

When the cost method of accounting for long-term investments in shares is employed, the receipt of a dividend on those shares is recorded as dividend revenue, not as an increase in the value of the investment asset or retained profits. This is because the cost method assumes that the investor has no influence or control over the investee, and therefore does not factor in any changes to the value of the investment or the investee's profits.

When the Cost Method of Accounting for Long-Term Investment in Shares