Final answer:
This question involves the equity method of accounting for investments, where income recognized is based on ownership percentage in the affiliate. The correct answer requires information about Art's ownership in Paint and potentially involves currency conversion. Professional advice is necessary for precise calculations and understanding equity method nuances.
Step-by-step explanation:
The subject of this question is the application of the equity method of accounting for investments. When a company uses the equity method, it recognizes income based on its percentage of ownership in the affiliate company. The income recognized is proportional to the earnings reported by the affiliate, in this case, Paint. Without further information regarding Art's percentage of ownership in Paint or the earnings reported by Paint, it's impossible to determine the correct equity method income to be reported on Art's separate-entity income statement. However, the options provided seem to imply that conversions between currencies may be necessary, where Canadian dollars (CDN$) and U.S. dollars (US$) are used. The correct option would be calculated by considering the share of Paint's earnings attributable to Art and applying the relevant exchange rate if earnings are reported in a different currency than that of Art's financial statements. Professional assistance from an accountant or financial advisor would be needed for the precise calculation including currency conversion and understanding the nuances of the equity method accounting.