Photo Finish Corporation bought a 40% interest in Click-It Corporation's $1 par value voting common stock on March 31,2019.On December 31,2019,Click-It paid a $1 million cash dividend declared earlier in 2019,and reported net income for the year ended 2019 of $10 million.On December 31,2019,Click-It's stock was trading at $11.50 per share. What effect will the dividend have on the Photo Finish financial statements?
A)It would increase cash and increase equity in investee earnings.
B)It would increase cash and decrease the investment account.
C)It would increase cash and increase net unrealized gains/losses.
D)It would increase cash and increase the investment account.

Question

Quizplus · Accepted Answer

The dividend from Click-It Corporation would increase Photo Finish Corporation's cash because they receive a portion of the dividend. However, it would decrease the investment account (the carrying value of the investment in Click-It) because dividends received from an investee are typically treated as a return on investment, reducing the carrying amount of the investment.

Photo Finish Corporation Bought a 40% Interest in Click-It Corporation's