Ilene South Company owns 40% of the outstanding common stock of Ilene Wright Company. During the year, South received a $150 million cash dividend from Wright. What effect does this dividend have on South's statement of cash flows for the year?
A) Cash flows from operating activities increased.
B) Cash flows from investing activities increased.
C) Cash flows from financing activities increased.
D) No effect.

Question

Quizplus · Accepted Answer

Even though South uses the equity method to account for the investment, cash dividends are received and therefore reported in the operating activities section of the statement of cash flows.

Ilene South Company Owns 40% of the Outstanding Common Stock