WHY WOULD DIVIDENDS NOT BE RECORDED ON THE EARNINGS STATEMENTTHAT - ProProfs Discuss
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Why would dividends not be recorded on the earnings statementthat were paid from an affiliated company?



Asked by Daisye, Last updated: Oct 09, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Equity income on the earning statement accounts for all earnings claimed as a result ofowning shares in an affiliated company. to then record dividends (which is generally apartial payment of the affiliated companys income to shareholders) would result indouble counting of income if the dividends were recorded on the earnings statement.there is no need to record dividends on the earning statement since equity income hasalready accounted for earnings. but since the dividends are received in cash, the cashflow statement is affected.with respect to the following statement in the text: therefore, earnings calculationsthat are adjusted for equity income are sometimes also increased by the amount ofdividends received from the entity subject to significant influence. i believe the text isreferring to ratio calculations involving earnings that are adjusted for equity income(i.e., equity income is subtracted to remove non-cash items), in which case dividendsactually received may be counted as part of earnings for a more accurate picture ofactual revenue that the company received.
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