When the equity method is used to account for an investment in stock,the investor will report its share of the investee's annual earnings as income regardless of how much the investee distributes in the form of dividends.

Question

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Under the equity method, the investor records its share of the investee's earnings as income regardless of whether or not the investee distributes dividends. The investor's share of the investee's dividends is recorded as a reduction of the investment account.

When the Equity Method Is Used to Account for an Investment