Question

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?
(A) debit Cash; credit Dividend Revenue
(B) debit Investments—Worton Corporation Stock; credit Income of Worton Corporation
(C) debit Cash; credit Investments—Worton Corporation Stock
(D) debit Investments—Worton Corporation Stock; credit Cash

Answer 1

Answer:

(A) debit Cash; credit Dividend Revenue

Explanation:

As Blanton Corporation has 35% investment in Worton Corporation, the dividend received from Worton Corporation will be recorded as Dividend Income / revenue. Cash received in the form of dividend will be debited to the cash account. Dividend is the income on the investment so it will not effect the original investment balance.