Aloe Company reports its income from its investment in Palm Company under the equity method.Aloe recognized income of $125,000 from its investment in Palm during the current year.Palm declared and paid dividends of which Aloe'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 Aloe Company prepared for the current year under the indirect method would be

Question

Quizplus · Accepted Answer

Under the indirect method of preparing the statement of cash flows, the equity method of accounting for investments is not reflected in the operating section. Therefore, the $125,000 income recognized from the investment in Palm is not included in the operating section. However, the dividends received of $25,000 are included as a deduction from net income in the operating section, resulting in a deduction of $100,000 ($125,000 - $25,000).

Aloe Company Reports Its Income from Its Investment in Palm