Financial Reporting: Equity Method conceptual troubles balance, conceptual, Investment, question

chunty

Alright, so in the Equity method:

Balance Sheet-
===================
Cost of the Investment
+ Share in Earnings
- Share in the Dividends

Income Statement-
===================
Share in the Earnings



My question is, to balance THE ACCOUNTING EQUATION ..Is the reduction in the Assets' side of the Balance Sheet compensated by -

ADDING THE DIVIDENDS to the CASH BALANCE

or

by eliminating the DIVIDENDS from the Income Statement as well ?

defour44

NO I/S elimination. WHen dividends are received, its an increase in cash and a decrease in the investment, no impact on total assets.

Journal Entry would be:
Dr Cash - $5
Cr Equity method investment - $5

To record dividends received from equity method investee.