Final answer:
Under the equity method, dividends that would be received but aren't due are not recorded as income but as a reduction in the investment's carrying value. No entry is made for these dividends until they are declared and due.
Step-by-step explanation:
Journal Entry for Dividends under the Equity Method
When accounting for dividends under the equity method, you do not record dividends that would be received but aren't due as income. Instead, these dividends are considered a return on the investment. Thus, the journal entry would typically involve a debit to Cash or Dividends Receivable if the company has a legal right to receive them, and a credit to the investment account, reducing its carrying value. This entry reflects that the money received (or receivable) is essentially taken out of the equity value of the investment rather than recognized as dividend income. This treatment follows the principle that under the equity method, an entity recognizes income only to the extent of its share of the earnings of the investee.
If the dividends are not yet declared or due, no entry is made until such time as the dividends are declared by the investee and the investor's right to receive payment is established.