Alright, so in the Equity method: Balance Sheet- =================== Cost of the Investment + Share in Earnings - Share in the Dividends Income Statement- =================== Share in the Earnings My question is, to balance THE ACCOUNTING EQUATION …Is the reduction in the Assets’ side of the Balance Sheet compensated by - ADDING THE DIVIDENDS to the CASH BALANCE or by eliminating the DIVIDENDS from the Income Statement as well ?
NO I/S elimination. WHen dividends are received, its an increase in cash and a decrease in the investment, no impact on total assets. Journal Entry would be: Dr Cash - $5 Cr Equity method investment - $5 To record dividends received from equity method investee.
Thank you very much, appreciated.