medium · Financial Accounting accounting-cycle-financial-statements

When an investor records its share of an investee's net income using the equity method, which of the following best describes the resulting 'Equity in Earnings' line item on the income statement?

1. It is a gain reported in Other Comprehensive Income.
2. It is an accrual-basis revenue item that typically represents a non-cash gain.
3. It is an operating expense that accounts for the cost of maintaining the investment.
4. It is a cash-basis revenue item equal to dividends received.

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