Equity Method Recognition of Income

Very Easy Intercorporate Investments Equity Method

A company, XYZ Corp, owns a 30% stake in ABC Inc., leading to significant influence over ABC's operating and financial policies. XYZ Corp uses the equity method to account for its investment in ABC Inc. Under the equity method, how should XYZ Corp recognize its share of ABC Inc.'s net income?

XYZ Corp recognizes its share of ABC’s net income as revenue.

XYZ Corp recognizes its share of ABC’s net income as an increase to its investment account.

XYZ Corp does not recognize any share of ABC’s net income.

Hint

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