Account Debit Credit

Investment in Subsidiary $200,000

Equity in Subsidiary Income $200,000

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

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

The recording of 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 subsidiary account balance (decreasing the account balance by $ 40,000).

Q1.Calculation What it the Investment in Subsidiary account balance at the end of the year (in the example above) using the Cost Method and Equity Method?