Monstervideo Corp. holds a 15% equity investment in Hotchin Inc. Minapp Investments holds 35% of...

Question:

Monstervideo Corp. holds a 15% equity investment in Hotchin Inc. Minapp Investments holds 35% of Hotchin Inc. stock. On May 1, 20X8, Hotchin Inc. declares and pays dividends to its stockholders. How will the dividend affect each company's balance sheet account: Hotchin Inc. investment?

Monstervideo Corp.

Minapp Investments

A. No effect, Decrease

B. No effect, No effect

C. Decrease, No effect

D. Decrease, Decrease

E. Increase, Increase

Investment

Accounting for investment varies depending on the percentage of ownership of your investment. Equity method is used if the investment resulted to significant influence.

Answer and Explanation:

The effects of the declaration of the dividend in each company's balance sheet are both decrease.

The journal entry when declaring cash dividends using equity method is:

Account title Debit Credit
Cash xx
Investment in affiliate xx

Learn more about this topic:

Loading...
Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
5.1K

Related to this Question

Explore our homework questions and answers library