When the cost method is used to account for a stock investment the carrying value of the investment is affected by
A) the earnings of the investee.
B) the dividend distributions of the investee.
C) the earnings and dividend distributions of the investee.
D) neither the earnings nor the dividends of the investee.

Question

Quizplus · Accepted Answer

When the cost method is used to account for a stock investment, the carrying value of the investment is not affected by the earnings or dividend distributions of the investee. The carrying value of the investment remains at its original cost, unless there is a decline in value of the investment that is deemed to be other than temporary, in which case the carrying value may be adjusted downward.

When the Cost Method Is Used to Account for a Stock