When an investor owns 35% of the stock of another business,cash dividends received from the investee company are recorded by decreasing the Equity-Method Investment account.

Question

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When an investor owns 35% of the stock of another business, cash dividends received from the investee company are recorded by decreasing the Equity-Method Investment account. This is because the equity method of accounting requires the investor to record its share of the investee's earnings and losses, which includes any dividends distributed by the investee. Thus, the Equity-Method Investment account is reduced by the amount of dividends received, which reduces the investor's equity in the investee company.

When an Investor Owns 35% of the Stock of Another