If a company reporting under ASPE decides to use the cost model to account for an investment in common shares, dividends received should be
A)credited to the investment account.
B)credited to the Dividend Revenue account.
C)debited to the investment account.
D)recorded only when 20% or more of the shares are owned.

Question

Quizplus · Accepted Answer

When using the cost model to account for an investment in common shares, dividends received should be credited to the Dividend Revenue account because they represent income earned by the investor. Option A is incorrect because dividends should not be credited to the investment account; instead, the investment account should be adjusted for changes in fair value. Option C is incorrect because debiting the investment account would result in overstating the investment's cost. Option D is incorrect because dividends should be recorded regardless of the percentage of shares owned.

If a Company Reporting Under ASPE Decides to Use the Cost