When the equity method is used to account for an investment in shares, dividends received are accounted for as a reduction in the investment account.

Question

Quizplus · Accepted Answer

When using the equity method, dividends received are treated as a reduction in the investment account rather than income. This is because the investor's equity in the investee's earnings is reflected in the increase or decrease in the investment account based on the investee's net income or loss.

When the Equity Method Is Used to Account for an Investment