Homework Answers
Investments in Equity securities.
Investment of less than 20%, there is said to be no influence and
Dividend Income is included in the Income statement.
Significant influence exists when the investment is more than 20%
but less than 50%. The Investment is accounted using the Equity
method (assuming significant influence exists and exceptions don't
apply). As per the Equity method, dividend income is shown as a
reduction from Investment account, not treated as income.
Therefore, the correct answer is A) No effect on Hutchinson Inc
investment account in the balance sheet of Montevideo
Corp (less than 20% investment, dividend recognized as income) and
decrease in the investment account in balance sheet of Minneap
Investments (35% investment = significant influence, therefore
equity method applies and decreases investment account balance)
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8. Montevideo Corp. holds a 15% equity investment in Hutchinson Inc. Minneap Investments holds 35% of...
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