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Homework answers / question archive / The receipt of cash dividends on a long-term investment in common stock is accounted for as a debit to Cash and a credit to Long-Term Investments
The receipt of cash dividends on a long-term investment in common stock is accounted for as a debit to Cash and a credit to Long-Term Investments. Which of the following methods is being used to account for the investment? O equity method market method cost method O revenue method
Under the equity method the investment is initially recorded at acquisition cost and dividend payouts are adjusted in the cost of investment based on the percentage ownership of the investor company in the investee company. The dividend payout decreases the investment value by debiting cash account and credit the long term investment. The market value method and cost method does not consider the dividend received to the investment account. There is no revenue method of costing for long term investment. Hence answer is Equity method.
