Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it carries the investment at fair value or if it uses the equity method of accounting?

 1. Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it carries the investment at fair value or if it uses the equity method of accounting?

     Fair Value    Equity
a.    No    No
b.    Yes    Yes
c.    Yes    No
d.    No    Yes
Multiple Choice
a.Correct
b.

c.


d.

Explanation

1.

Cash dividends received will never cause an increase in the investment account under either method.

     Fair Value    Equity    
•    Yes    Yes    Incorrect. A cash dividend is recorded as dividend income and does not affect the investment account when the investment is carried at fair value. Under the equity method, dividends reduce the investment account.
•    Yes    No    Incorrect. A cash dividend is recorded as dividend income and does not affect the investment account when the investment is carried at fair value.
•    No    Yes    Incorrect. Under the equity method, dividends reduce the investment account.