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Amanda Strong
on Oct 16, 2024

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At the beginning of 20X1, Anwar Ltd. acquired 15% of the voting shares of Cruz Co. for $150,000. Anwar does not have any significant influence over Cruz. Anwar reports the investment using the cost method. In 20X1, Cruz earned net income of $70,000 and paid dividends of $40,000. In 20X2, Cruz earned net income of $80,000 and paid dividends of $100,000. At the end of 20X2, what journal entry should Anwar make on its books to record the dividends from Cruz?

A)  DRCash 12,000 CR Investment in Cruz 12,000\begin{array} { | c | c | } \hline \text { DRCash } & 12,000 \\\hline \text { CR Investment in Cruz } & 12,000 \\\hline\end{array} DRCash  CR Investment in Cruz 12,00012,000
B)  DRCash 15,000 CR Investment in Cruz 15,000\begin{array} { | c | c | } \hline \text { DRCash } & 15,000 \\\hline \text { CR Investment in Cruz } & 15,000 \\\hline\end{array} DRCash  CR Investment in Cruz 15,00015,000
C)  DRCash 15,000 CR Investment income 15,000\begin{array} { | c | c | } \hline \text { DRCash } & 15,000 \\\hline \text { CR Investment income } & 15,000 \\\hline\end{array} DRCash  CR Investment income 15,00015,000
D) No entry is required

Journal Entry

A record in accounting that shows the financial transactions of a company in terms of debits and credits.

Cost Method

An accounting approach where investments are recorded at their acquisition cost, with income recognized only when dividends are received from the investee.

Dividends

Money disbursed to shareholders by a corporation, often coming from the profits of the business.

  • Account for dividends and their effects on investments.
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December DortonOct 18, 2024
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