Equity method makes the following changes in the financial statements: BS: cost + proportional share * (earnings - dividend) IS: (proportional share) * earnings why doesn’t sassociate company’s dividend affect investor’s income statement? Will that cause the balance sheet to not balance? Thanks!
It’s considered a return of capital, not return on.
because if it did, you would be double-counting income. When i have an equity method investee, i pick up that entity’s earnings into my income statement. SO if the i own 50%, and the investee earned $100, i record $50 of income in my P&L. Note that this is simply my share of what the entity earned - not necessarily a cash distribution to me. If the investee then pays me $50 in dividends, i’ve already recorded that amount into my income statement via picking up the share of the investee’s earnings. So if i record income when its earned by the investee, and then again when its distributed to me in the form of a dividend, i would’ve double-counted that income.