Question

Olsen Company reports investment income relating to equity method investments of 50,000, and it had a related investment account that increased by 15,000. If Olsen uses only one journal entry to determine cash received from the investments, the entry would include?

1) Debit to Cash for 50,000 and credit to Investment Income for 50,000
2) Debit to Cash for 15,000 and credit to Investment Income for 15,000
3) Debit to Cash for 50,000 and credit to Investment Account for 15,000
4) Debit to Cash for 15,000 and credit to Investment Account for 50,000

Answer 1

The correct answer is option 2) Debit to Cash for 15,000 and credit to Investment Income for 15,000. This entry reflects the cash received and records the investment income.

Step-by-step explanation:

The correct answer would be option 2) Debit to Cash for 15,000 and credit to Investment Income for 15,000.

Since Olsen Company reports investment income of 50,000 and the investment account increased by 15,000, we can conclude that a portion of the investment income was received in cash. The entry should reflect this cash received. Therefore, the debit should be for the cash received, which is 15,000, and the credit should be for the same amount to the Investment Income account to record the income.