Adjusted Cost and Equity Method

Question 1

A stock dividend is the distribution of stock or a cash payment?

Answer 1

Distribution of extra stock

Question 2

What is the journal entry when an initial investment occurs? (equity method)

Answer 2

Investment $10

Cash $10

Question 3

What is the journal entry for reporting investor’s share of income? (equity method)

Answer 3

Investment $3

Equity in Investee Income $3

Question 4

What is the journal entry for recording a dividend?

equity method

Answer 4

Dividend receivable $2 (or cash)

Investment $2

Question 5

What is the journal entry when an initial investment occurs? (adjusted cost method)

Answer 5

Investment $1000

Cash $1000

Question 6

What is the journal entry for reporting investor’s share of income? (adjusted cost method)

Answer 6

No entry!

Question 7

What is the journal entry for for recording a dividend? (adjusted cost method)

Answer 7

Cash $100
Dividend income $100
Dividends do not reduce the investment for adjusted cost method.