A company that owns 40% of the common stock of another business recognizes revenue from the investment when:
A)the investor sells the shares in the investee company.
B)the investee issues a cash dividend.
C)the investee recognizes net income.
D)the investee issues a stock dividend.

Question

Quizplus · Accepted Answer

According to the equity method of accounting, the investor recognizes revenue from the investment when the investee recognizes net income. This is because the investor has significant influence over the investee and therefore shares in its profits and losses. The other options (A, B, and D) do not necessarily result in revenue recognition for the investor.

A Company That Owns 40% of the Common Stock of Another