Equity Method Income Recognition

Easy Intercorporate Investments Equity Method

XYZ Corporation owns 30% of the voting shares of ABC Company, which qualifies for the equity method of accounting due to significant influence. During the fiscal year, ABC Company reported a net income of $2 million and declared dividends of $500,000. When preparing its financial statements for the year, how should XYZ Corporation recognize its share of the net income from ABC Company?

Recognize $600,000 as income and reduce the investment account by $500,000.

Recognize $600,000 as income and increase the investment account by $600,000.

Recognize $500,000 as income and reduce the investment account by $500,000.

Hint

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