A parent company uses the partial equity method to account for an investment in common stock of its subsidiary. A portion of the dividends received this year were in excess of the parent company's share of the subsidiary's earnings subsequent to the date of the investment. The amount of dividend income that should be reported in the parent company's separate income statement should be:
A) zero.
B) the total amount of dividends received this year.
C) the portion of the dividends received this year that were in excess of the parent's share of subsidiary's earnings subsequent to the date of investment.
D) the portion of the dividends received this year that were not in excess of the parent's share of subsidiary's earnings subsequent to the date of investment.

Question

Quizplus · Accepted Answer

Under the partial equity method, dividends received in excess of the parent's share of subsidiary's earnings are not recognized as dividend income in the parent's income statement. Instead, they reduce the carrying amount of the investment. Therefore, no dividend income should be reported.

A Parent Company Uses the Partial Equity Method to Account