The method of accounting for subsidiaries where investment income is limited to dividends received is the
A)cost method.
B)simple equity method.
C)investment method.
D)sophisticated equity method.

Question

The method of accounting for subsidiaries where investment income is limited to dividends received is the
A)​cost method.
B)​simple equity method.
C)​investment method.
D)​sophisticated equity method.

Quizplus · Accepted Answer

The cost method is used when the parent company has limited influence over the subsidiary and only receives dividends as investment income. Under this method, the investment is initially recorded at cost and is subsequently adjusted for any dividends received. The parent company does not recognize the subsidiary's earnings or losses in its financial statements. Therefore, the cost method is the best choice for this scenario.

The Method of Accounting for Subsidiaries Where Investment Income Is