(a) The requirement is to determine the effects of a cash
dividend on an investors investment account, accounted for both
as an available-for-sale security, and under the equity method.
Dividends received on available-for-sale securities are to be recognized
as income to the investor and the investment account is
unaffected. If the dividends received are in excess of earnings to
date, then they would be considered a return of the investment
and would result in a reduction of the investment account. Under
the equity method, the receipt of cash dividends reduces the
carrying value of the investment. Therefore, answer (a) is correct
as the receipt of a cash dividend would not result in an increase in
the investment account under either method.