An Investor That Uses the Equity Method of Accounting for Its

question 29

Multiple Choice

An investor that uses the equity method of accounting for its investment in a 30 percent-owned investee that earned $50,000 and paid $8,000 in dividends, made the following entries:

What effect will these entries have on the parent corporation's statement of financial position?

• A) Investment in subsidiary understated, retained earnings understated.
• B) Investment in subsidiary overstated, retained earnings overstated.
• C) Investment in subsidiary overstated, retained earnings understated.
• D) Financial position will be fairly stated.

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Definitions:

Variance

A measure of the dispersion of a set of data points around their mean value, indicating how spread out the data points are.

Portfolio

A collection of investments held by an individual or an institution.

Expected Rate

A predicted rate of return or outcome based on certain assumptions or historical data.

Standard Deviation

A statistical measure of the dispersion or spread of a set of values, indicating how much the values differ from the mean.