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?
A. No effect, Decrease
B. No effect, No effect
C. Decrease, No effect
D. Decrease, Decrease
E. Increase, Increase
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:
|Investment in affiliate||xx|
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from Finance 305: Risk ManagementChapter 3 / Lesson 3