Mock 1 Q13 equity method

in explanation of answer for net income: ACI only takes proportionate % of net income from equity investments, why doesn’t it also add dividends paid to ACI as part of parent’s net income?

ignore word “parent” at end of my Q

BV is increased by NetIncome - Div CF include Div IS includes NetIncome

but then why are Divs of other stocks included in ACI’s net income and not the divs of the 60% and 30% owned ones? does it have something to do with the >20% stake??

sorry, I don’t know the question … can’t help more

no worries, thanks for trying

because when you own more than 20% you are considered to have significant influence over dividend payouts. The reason why you dont count the div is because its like you are paying yourself.

ok, sounds familiar. but if we dont count them as part of net income how are divs received by ACI accounted for?

The divs are added to cash and subtracted from the asset on the balance sheet, reducing your cost basis. I THIINK, not sure

yea i just looked it up. you reduce your investment by the div amount.

that’s what I said above

someone remind me what is the accounting adjustment for a passive investment in a company, i.e. less than 20% and no influence, what do we do with dividends (the entries)