标题: Equity method and dividends rec'd...confused [打印本页] 作者: Sunshine4ever 时间: 2011-7-13 14:34 标题: Equity method and dividends rec'd...confused
2010 Schweser Practice - Book 1 Exam 1 PM #74
I'm confused here.
Here is part of the answer key. Midland is an associate and we use equity method to report :
Since Iberia owns 40% of Midland (5 million shares owned I 12.5 million total shares
outstanding), the equity method is used. Under the equity method, Iberia reports its
pro-rata share of Midland's net income (€5 million loss x 40% = €2 million loss).
Changes in market value are ignored under the equity method.
** My concern is with Midland. Our share of the 5million loss is 2 million, which I report on the I/S. Midland also paid out $4 million in dividends in the year. Our share of that dividend is 1.6 million, which will end up in cash.
Should I not be reporting the 1.6 dividend received AND the 2 million loss on the income statement?
In the answer key, they ignore the dividend received and only report the portion of the net loss to the I/S.
WHAT AM I MISSING?!?作者: b_sea93 时间: 2011-7-13 14:34
The dividend should not reported on the income statement. It should increase/decrease the "Investment" account on the balance sheet according to the equity method.作者: kkn006 时间: 2011-7-13 14:35
Nevermind, I need more Red Bull.
Figured out that you don't report dividends on equity method, since they are taken away from the investment account already.
Disregard.作者: huangxiaoxie 时间: 2011-7-13 14:35
beingthatguy, thanks. Temporary lapse of intelligence.
Thanks for the quick reply!
Cheers作者: Houjichasan 时间: 2011-7-13 14:35
What is the question asking exactly? under the equity method you just report a your pro-rata share of income/loss on one line. Dividends are not reported under the same line.作者: jacksparrow 时间: 2011-7-13 14:35
The question asks for what effect the whole thing will have on the I/S.
I originally thought that I had to report the dividend received on top of the allocation of profit/loss to the investment account...
