medium · Financial Accounting statement-of-cash-flows
Marwick Inc.'s equity-method investee earned $400,000 and paid total dividends of $150,000 during the year; Marwick owns 30%. Marwick's net income already includes its $120,000 equity-method share of investee earnings.
Under the indirect method, what is the net adjustment to net income in the operating section for this investment, and why?
- Subtract $75,000, because equity income exceeds dividends received by that amount
- Add $45,000, because dividends received exceed the equity income recognized
- Subtract $120,000 equity income and separately add $45,000 dividends, with no net operating effect
- Subtract $120,000 equity income; the $45,000 dividend is an investing inflow
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