If the equity method is used to account for a long-term investment in common stock,cash dividends received from the investee are recorded by the investor as:
A)a debit to Equity-method Investment and a credit to Equity-method Investment Revenue.
B)a debit to Cash and a credit to Dividend Revenue.
C)a debit to Dividend Receivable and a credit to Dividend Revenue.
D)a debit to Cash and a credit to Equity-method Investment

Question

Quizplus · Accepted Answer

Under the equity method, cash dividends received from the investee are considered a return on investment and reduce the carrying amount of the investment. Therefore, they are recorded as a debit to Cash (increasing cash) and a credit to the Equity-method Investment account (decreasing the investment balance).

If the Equity Method Is Used to Account for a Long-Term