Recognition of Income and Dividends under Equity Method

Medium Intercorporate Investments Equity Method

Company X owns a 30% stake in Company Y, which it accounts for using the equity method. In the most recent year, Company Y reported net income of $2 million and declared dividends of $400,000. How should Company X recognize its share of Company Y's net income and dividends when preparing its consolidated financial statements?

Company X records $600,000 as income and $120,000 as dividends received.

Company X records $600,000 as income and does not recognize any dividends.

Company X records $1 million as income and $200,000 as dividends received.

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