Moscow Resources Company owns a 35% interest in Siberia Mining Company. Moscow uses the equity method to account for the investment. During 20X6, Siberia had net income of 180 million rubles and paid cash dividends of 40 million rubles. Moscow’s net income, including the effect of its investment in Siberia, was 500 million rubles.
1. In reconciling Moscow’s net income with its net cash provided by operating activities, the net income must be adjusted for Moscow’s pro rata share of the net income of Siberia. Compute the amount of the adjustment. Will it be added to or deducted from net income?
2. Under the direct method, will the dividends paid by Siberia affect the amounts Moscow lists under operating, investing, or financing activities? By how much? Will the amount(s) be cash inflows or cash outflows?