Question -
1. Why does the equity method record dividends received from an investee as a reduction in the investment account, not as dividend income?
2. Jones Company possesses a 25 percent interest in the outstanding voting shares of Sandridge Company. Under what circumstances might Jones decide that the equity method would not be appropriate to account for this investment?
3. Smith, Inc., has maintained an ownership interest in Watts Corporation for a number of years. This investment has been accounted for using the equity method. What transactions or event create changes in the Investment in Watts Corporation account being recorded by Smith?