ABC Corporation does not have a significant influence over its 10% investment in

Question

ABC Corporation does not have a significant influence over its 10% investment in Yazd Corporation. If Yazd completed its first year following the acquisition with $15,000 net income and paid $12,000 dividend, how this information affects ABC’s account of Investment in Yazd Corporation?

a. Investment in Yazd is increased by $1,500. b. Investment in Yazd is decreased by $300. c. Investment in Yazd is increased by $1,200 d. Investment in Yazd is not affected due to using cost method. e. None of these answers is correct.

Explanation / Answer

Cost method in current investment explains that investment is to be presented at cost or market value which ever is less. The dividend received i.e, 12000 x 10% = 1200. It will be recorded as income. It will not be added to investment value.

So Investment will not be affected using cost method.

So the answer is Option D.

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