Required information KnowledgeCheck 01 The equity method requires the investor to recognize investment income equal to its percentage share (based on share ownership) of the net income earned by the investee, rather than the amount received as cash dividends. The investment account is adjusted for the investor's percentage share of net income or loss reported by the investee. When the investor actually receives dividends, the investment account is reduced accordingly. When the Investor Has Significant Influence: Equity Method Ownership of >50% of voting shares Control Ownership of >20% of voting Significant influence Investment in voting stock with significant influence but not control is reported using equity method Knowledge Check 01 On January 1, Year 1, Johnston Company purchased a 40% interest in the common stock of Truly Inc. for $100,000. Johnston has significant influence but not control. On December 10, Year 1, Truly declared and paid dividends of $20,000. Truly reported net income of $50,000 for Year 1. What is the book value of Johnston's investment in Truly at the end of Year 1? Book value