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ysjd.patel
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Joined: 12 Jan 2009
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Posted: 26 Mar 2009 at 18:55 \| IP Logged

An investor uses the cost method to account for an investment in common stock. Dividends received this year exceeded the investor's share of investee's undistributed earnings since the date of investment. The amount of dividend revenue that should be reported in the investor's income statement for this year would be:
ans:b. The portion of the dividends received this year that were not in excess of the investor's share of investee's undistributed earnings since the date of investment.
Can anyone explain me how?

divyagovil1
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Joined: 30 Jan 2009
Location: India
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Posted: 26 Mar 2009 at 19:07 \| IP Logged

Cost Method :-

Any dividends received would be credited to Income statement of the investor.

However, if such dividends are in excess of the investor's share of investee's undistributed earnings/retained earnings, then that excess would be credited to "investment in investee" account. This excess is called liquidating dividend.

Thus, only the portion which is not in excess of the investor's share of investee's undistributed earnings/retained earnings would be credited to IS, rest would be credited to Investment in investee a/c.

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ysjd.patel
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Posted: 26 Mar 2009 at 19:31 \| IP Logged

thanx alot divya...:)

lily roth
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Posted: 15 Jul 2016 at 23:03 \| IP Logged

Thanks!!

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