Under ASPE 3051 Cost Method (subsequent), which entry records earnings?

Under ASPE 3051 Cost Method (subsequent), which entry records earnings?

• A. Dr Cash; Cr Investment in Small
• B. Dr Dividend Income; Cr Investment in Small
• C. Dr Investment in Small; Cr Cash
• D. Dr Investment in Small; Cr Equity Income

Answer: (C)

Under ASPE 3051 Cost Method, the investment is carried at cost and the investor does not recognize the investee’s earnings in the income statement. Earnings from the investee are not added to the investment balance; instead, cash dividends received are recognized as dividend income. The normal entry when a cash dividend is received is to debit Cash and credit Dividend Income, reflecting the inflow of cash and the income earned from the investment. The investment balance itself is not increased by earnings. The entry in question would more closely resemble a purchase of additional investment (debit Investment, credit Cash), which is not recording earnings.

Under ASPE 3051 Cost Method, the investment is carried at cost and the investor does not recognize the investee’s earnings in the income statement. Earnings from the investee are not added to the investment balance; instead, cash dividends received are recognized as dividend income. The normal entry when a cash dividend is received is to debit Cash and credit Dividend Income, reflecting the inflow of cash and the income earned from the investment. The investment balance itself is not increased by earnings. The entry in question would more closely resemble a purchase of additional investment (debit Investment, credit Cash), which is not recording earnings.