Equity Method Investment Income Recognition

Medium Intercorporate Investments Equity Method

Company A owns a 30% interest in Company B, which qualifies as a significant influence investment under the equity method. In the current fiscal year, Company B reported net income of $2 million and declared dividends totaling $600,000. Company A also has a $1 million carrying value for its investment in Company B as of the beginning of the year. How should Company A recognize its share of the income and dividends from Company B in its financial statements?

Recognize $600,000 as equity income and reduce the carrying value of the investment by $600,000.

Recognize $600,000 as equity income and increase the carrying value of the investment by $600,000.

Recognize $600,000 as equity income and report the full carrying value without adjustment.

Hint

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