Dividends Recieved for Equity Investment

For the Equit investment method of 20% or more, when you recieve dividends from your investment in a company, are those dividends deducted directly from the investment on the balance sheet, or do they also show up on the income statement as dividends recieved. Based off some qbank questions it looks like only the EPS of your % owned is reported in the Income Statement, the dividends just deduct directly from the investment on the balance sheet but just wanted to confirm.

dtrynoski Wrote: ------------------------------------------------------- > Based off some qbank questions it looks like only > the EPS of your % owned is reported in the Income > Statement, the dividends just deduct directly from > the investment on the balance sheet but just > wanted to confirm. This is correct. I/S: On our Income Statement as an investor, we will report prorated NI from Investee Operations. B/S: Our investment will reduce by any dividends paid by Investee.

dividends reduction also is pro-rata share of dividends paid by investee.

Yes CP. Thanks for correction.

good way to think about it is like this, IMO - Under equity method, you record income simply based on your % ownership & the earnings of the subsidiary. If you were then to record income on dividends received, you would be effectively double counting income (because you already recorded the income based on your % ownership). THe dividends is really just the cash realization of that income. So basically, each reporting period you accrue your income, with the balance sheet impact being an increase in the investment. When the dividend gets paid, you reduce your investment and increase cash (no P&L impact). SO in that way, its really not all that different from collecting cash on an Account Receivable. You record income when the receivable gets booked, but not when the cash comes in.

This clears up any lingering confusion I had, thanks. For some reason I forgot that dividends are not subtracted from NI until it is transfered to RE. Yikes…