When an investor is capable of influencing the investee company's dividend policy, the investor is able to augment its own reported income when using: dividend payout.
Investors do not treat dividends as equity method income. Instead, the investor deducts the cash dividend amount from the book value of the investment.
Under the equity method, if an investee makes a profit and reports net income, the investment account increases after the initial investment are recognized.
When using the equity method, investors should account for dividend policy, from investees as an A reduction in the investment account. Western Manufacturing Company owns 40% of the outstanding common stock of Eastern Supply Company. In 2016, Western received her $50 million cash dividend from Eastern.
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