Pence Corporation, which accounts for its investments in the common stock of Walsh Company by the equity method, should ordinarily record a dividend received from Walsh as

Question

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Dividends received from an investee under the equity method are considered returns on the investment, thus they reduce the carrying value of the investment on the investor's books. This reflects the fact that the investee company has distributed some of its equity (in the form of dividends) back to its shareholders, including the investor.

Pence Corporation, Which Accounts for Its Investments in the Common