Compared to the Equity Method, the Cost Method of Accounting

Compared to the equity method, the cost method of accounting for an investment in a profitable company results in:

A) lower earnings, and lower cash flows.
B) higher earnings, and higher cash flows.
C) lower earnings, and no effect on cash flows.
D) higher earnings, and no effect on cash flows.
Guido Inc. buys 2,000 shares of Weiner Company for $30 per share on January 1, 2006. At the end of 2006, Weiner shares are trading at $33 per share. Weiner has a total of 200,000 shares outstanding and reported net income of $3,000,000 and paid dividends of $1,000,000 for fiscal 2006.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free