Liquidating dividend cost method
The undistributed earnings give rise to a deferred tax liability ("DTL") payable when the earnings are ultimately distributed, or the investment is liquidated.
Recall that taxes on dividend income may be offset by the Dividends Received Deduction ("DRD").
When we calculate cost basis for your Vanguard investments, we'll automatically use "average cost" for mutual funds and "first in, first out" for individual stocks.
But you can change those settings—or use "specific identification" if you're more of a hands-on investor.
Here are some details to help you understand the pros and cons of each method.
The company does not actually record the subsidiary's assets and liabilities on its balance sheet.When Company A (the investor) has significant influence over Company B (the investee)—but not majority voting power—Company A accounts for its investment in Company B using the equity method of accounting.Company B is considered an of Company A in such circumstances, from Company A's perspective, but could be a freestanding, publicly traded corporation.When you buy or sell shares of a security, the cost basis of your position in that security will change.Depending on the type of security, factors other than the original purchase price of a security can have an impact on cost basis.