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Question 23 4 pts On 03/01/2019 ABC Company purchased 30% of the stock of XYZ Corporation for $6,000,000. How will ABC treat
On 01/01/2018, Hanny Company acquired 60,000 shares of the 400,000 outstanding shares of Edwards Company common stock for $24
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Answer #1

- How will ABC treat a 2019 cash dividend paid by XYZ to its shareholders?

ABC will record the dividend using the equity method, the dividend will therefore be reported as a reduction in the amount of investment in XYZ.

The equity method of accounting is used to account for an organisation's investment in another entity(investee). This method is only used when the investor have significant influence over investee. A company have significant influence over other company when it own more than 20% of voting stocks.

When ABC recieves dividend from XYZ company in which it holds 30% of shares it will be recorded as a reduction in their investment account.In other words, there is an outflow of cash from the investee which should be reflected as a reduction in investment account.

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