A company records income from an investment in common stock when it does which of the following?

Income from an investment in common stock is primarily recognized by the investor when the issuing company distributes its earnings to shareholders in the form of dividends. When a company declares and pays a dividend, it represents a return on the investment for the stockholder, which is recorded as dividend income. This is a fundamental principle of accounting for equity investments where the investor does not have significant influence. Interest income is associated with debt investments (bonds), not equity (stock).

A. Purchasing bonds is an investment activity (a cash outflow) and does not represent the recording of income.
B. Interest is income received from debt instruments like bonds or loans, not from common stock investments.
D. Selling bonds relates to debt securities. While a sale can result in a capital gain (a form of income), it is not the standard way income is recorded from holding an investment.

1. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting (17th ed.). Wiley. Chapter 17, "Investments," specifies that for equity investments without significant influence, income is recognized when dividends are declared by the investee.

2. Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2021). Intermediate Accounting (10th ed.). McGraw-Hill Education. Chapter 12, "Investments," details the accounting treatment for various securities, clarifying that dividend revenue is recognized for stock investments.

3. Harvard Business School. (2002). Finance for Managers. Harvard Business School Press. Chapter 4, "Understanding Financial Statements," explains that dividends are a distribution of profits to shareholders and are recorded as income by the recipient.