A Parent Corporation That Uses the Equity Method of Accounting

question 43

Multiple Choice

A parent corporation that uses the equity method of accounting for its investment in a 40 percent owned subsidiary, which earned $20,000 and paid $5,000 in dividends, made the following entries: $$\begin{array} { | l | l | l | } \hline \text { Investment in Associate } &8,000 & \\\hline \text { Investment revenue } & & 8,000\\\hline \text { Cash } & 2,000 & \\\hline \text { Dividend revenue } & & 2,000\\\hline\end{array}$$ What effect will these entries have on the parent's balance sheet?

• A) Overstate investment, overstate retained earnings
• B) Understate investment, understate retained earnings
• C) Overstate investment, understate retained earnings
• D) Financial position will be fairly stated
• E) Understate investment, overstate retained earnings

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Definitions:

Major Depression

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Perinatal Onset

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