How to account for associate income and dividends?
A few questions on intercompany investments with associates:
1. Let’s say the parent owns 50% of the subsidiary; the sub’s income is $100k and assumes no dividends paid, the parent’s investment account of the sub increases by $50k. Why are we accounting for the value of the sub through its net income, and not its fair value change?
2. When the investment account increases by $50k for the parent, how is this increase balanced? Is it in shareholder’s equity?
3. In the case the subsidiary pays out a dividend of $50k, the parent’s investment account increases by $25k in this case. How is the income statement and cash flow statement affected in this case?
Thanks in advance