In terms of the Cost Method, the investor will initially record the investment as a DR to Investment in Investee and a CR to Cash. Because the investor only has <20% ownership in the investee (and does not exert significant influance), the general activity that will be recorded is dividend income (in proportion to the % of ownership). The thing to remember is that the investor owns a percentage of the retained earnings in the investee (in proportion to the % of ownership) – anything received in terms of cash in excess of the dividend income reduces the original investment in investee account.
Ex. Investor owns 10% in Investee, Investee pays $10M dividend, Investee has retained earnings of $2.5M
DR Cash $1,000,000
CR Dividend Income $250,000
CR Investment in Investee $750,000
The investor is basically receiving back a portion of the original investment in the investee
AUD - 89
BEC - 83
FAR - 81
REG - 86
Finally done - many thanks to Jeff and A71!
F - 5/8/13 81
R - 74, 2/7/14 86
B - 74, 12/6/13 82
A - 70, 11/4/14 89!!!
I'm done 🙂 Many thanks to Jeff, A71 and Roger CPA!!!
MBA and CPA