F3- cost method

Question 1

what is the formula of “dividend income”.

Answer 1

number of shares x dividebd per share. receipt of stock dividend is not income, it increases number of share hold and decrease the cost basis per share.

Question 2

explain “cost method”?

Answer 2

for external reporting, less then 20% of the ownership and do not have influence. DO not consolidate financial report.

Question 3

explain “marketable securities” in cost method?

Answer 3

It is in OCI(other comprehensive income), it also calls “available for sale” and “fair value” methods.

Question 4

explain “retained earnings”?

Answer 4

It also calls Profit or earning. if a company give you more in excess of retain earning, then it is not dividend, it is reduce of capital. DR: cash, CR: investment in investee.

Question 5

explain “dividend earning”?

Answer 5

Dividend earning should record in not exceed the retain earning. if dividend is receiving in excess of the retained earning, then it is reducing the capital distribution.