Question

Under the equity method, dividends declared by a subsidiary are accounted for by the parent as Select one: A. decrease in Equity Investment, but only if it is a liquidating dividend. B. dividend revenue. C. increase in Equity Income. D. decrease in Equity Investment.

Answer 1

Answer: D. decrease in equity investment

Explanation:

A decrease in the owner's equity occur when a company loses money during the normal course of the business and when the owners need to move equity into normal business operations.

But in this case under the equity method, dividends declared by a subsidiary are accounted for by the parent when there is decrease in equity investment.

Equity also decreases when an owner withdraws money for personal use.