Equity Method for accounting of Investments: Equity method of accounting for Investments is used when a company purchase shares of the other company ranging between 20% and 50 %, i.e. when ownership is more than 20 % or more than and less than or equal to 50 % and has significant control over the operations of the company. The investment account is created and all the income that it earned are added to the investment account and when it received dividend from the company whose shares have been bought, the dividend is subtracted from the investment account. The journal entry to record receipt of dividend from the investment will be – Date Accounts Titles and Descriptions Debit (Amount in $) Credit (Amount in $) Cash Equity Investment---XXX Co. The correct journal entry to record the receipt of dividend from Pink Co.

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Chapter 15, Problem 5QC

To determine

Concept Introduction:

Equity Method for accounting of Investments:

Equity method of accounting for Investments is used when a company purchase shares of the other company ranging between 20% and 50 %, i.e. when ownership is more than 20 % or more than and less than or equal to 50 % and has significant control over the operations of the company.

The investment account is created and all the income that it earned are added to the investment account and when it received dividend from the company whose shares have been bought, the dividend is subtracted from the investment account.

The journal entry to record receipt of dividend from the investment will be –

Date Accounts Titles and Descriptions Debit (Amount in $) Credit (Amount in $)

Cash

Equity Investment---XXX Co.

The correct journal entry to record the receipt of dividend from Pink Co.

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