EB Company reports its income from its investment in JB Company under the equity method. EB recognized income of $150,000 from its investment in JB during the current year. JB declared and paid dividends of which EB's share was $25,000 during the current year. The effect of these activities on the operating section of the statement of cash flows of EB Company prepared for the current year under the indirect method would be

Question

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Under the indirect method of preparing the statement of cash flows, dividends received from an equity method investment are deducted from net income in the operating section as they are considered a return of investment and not operating income. Therefore, the $150,000 income recognized from the investment in JB is added back to net income, and the $25,000 dividend received is deducted, resulting in a net deduction of $125,000 in the operating section.

EB Company Reports Its Income from Its Investment in JB