Question

Franklin Investments holds a 15% equity investment in Titans Inc. and treats it as a passive investment. O’Hare Consulting holds 30% of Titans Inc.’s stock and has a significant influence over Titans Inc. On August 10, 2020, Titans Inc. pays dividends to its stockholders. How will the dividend affect each company’s investment account? Group of answer choices Franklin Investments: Decrease; O'Hare Consulting: No Effect Franklin Investments: Decrease; O'Hare Consulting: Decrease Franklin Investments: No Effect; O'Hare Consulting: No Effect Franklin Investments: No Effect; O'Hare Consulting: Decrease

Answer 1

Franklin Investments: No Effect; O'Hare Consulting: Decrease

Step-by-step explanation:

Franklin Investments will record the dividends received as dividends revenue. On the other hand, O'Hare Consulting is using the equity method, therefore, any dividends received will actually decrease the investment account. Dividends received reduce the investment account when using the equity method, while the declaration of net profits increases the investment account.