What is the balance of the “Investment in Subsidiary” account at the end of the year using the Cost Method and the Equity Method?

Investment in Subsidiary $200,000

Income share of subsidiaries $200,000

Clearly, the above entry affects the investment in the subsidiary account balance (increasing the account balance by $200,000).

The accounting of dividends declared and paid follows the same logic. If the parent company is receiving dividends, the parent is essentially getting value out of the investment.

The record of the dividend received is accounted for using the following entry (assume the subsidiary is 80% owned and declared a dividend of $50,000):

Account              Debit         Credit
Cash                  $ 40,000
Investment in Subsidiary $ 40,000

Clearly, the above entry impacts the investment in the subsidiary account balance (decreasing the account balance by $40,000).

Answer rating: 100% (QA)

Using the Cost Method The balance of the Investment in Subsidiary account at the end of the y... View the full answer