The receipt of dividends from an investment affects the investment account when which of the following methods is used?
A)cost method
B)equity method
C)fair value through profit or loss model
D)fair value through other comprehensive income model

Question

Quizplus · Accepted Answer

Under the equity method, dividends received from the investment reduce the carrying amount of the investment on the investor's balance sheet. This method recognizes the investor's share of the investee's profits and losses, adjusting the investment's value accordingly. Dividends are considered a return on the investment, thus reducing its value.

The Receipt of Dividends from an Investment Affects the Investment