Eric Company reports its income from its investment in Kate Company under the equity method.Eric recognized income of $150,000 from its investment in Kate during the current year.No dividends were declared or paid by Kate during the year.Eric would show the $150,000 in its statement of cash flows for the current year prepared under the indirect method as

Question

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Under the equity method, income recognized from an investment increases the investment account on the balance sheet and is recorded as income in the income statement. However, since no actual cash is received (no dividends were declared or paid), this income must be deducted from net income in the operating activities section of the statement of cash flows when using the indirect method. This adjustment is necessary to reconcile net income to net cash provided by operating activities.

Eric Company Reports Its Income from Its Investment in Kate