Question

A company invested $45,000 in Yale Co. stock. The investment represented 5% of the voting stock of Yale Co. If the Yale Co. stock investment paid dividends, what account would be credited?

A. Equity Investments
B. Interest Revenue
C. Dividend Revenue
D. Cash

Answer 1

Dividends paid by Yale Co. to its investors would credit the Dividend Revenue account in the investor's accounting records, reflecting the distribution of profits.

Step-by-step explanation:

When a company like Yale Co. pays dividends to its shareholders, the proper accounting treatment in the books of the investors is to credit the Dividend Revenue account. Once the dividend is declared by Yale Co. and a right to receive payment is established, the investing company would make an entry to debit Cash (assuming it has received the dividend payment) and credit Dividend Revenue.

This is because dividends are a distribution of a company's profits to its shareholders and are not considered an interest payment on invested capital, nor do they represent an increase in the value of the investment itself, which would be a capital gain.