Reference no: EM132729777

On January 1, 2019, X Inc. purchased 25% of the voting shares of Y Inc. for $100,000. The investment is reported using the equity method, as X has significant influence over Y.

Y's net income and declared dividends for the following three years are as follows:

            Net Income              Dividends

2019       $50,000                $20,000
2020        $70,000                $80,000
2021       $30,000                 $60,000

Problem 1: Which of the following journal entries would have to be made to record X's share of Y's dividends paid for 2019?

Multiple Choice

Option 1: Cash $5,000 Dividend income $5,000

Option 2: No entry required.

Option 3: Cash $5,000 Investment in Y $5,000

Option 4: Investment in Y $5,000 Dividend income $5,000