Mayberrry Company Owns 40% of Xnau Corporation's Outstanding Common Stock

question 31

Multiple Choice

Mayberrry Company owns 40% of Xnau Corporation's outstanding common stock. During the calendar year 2018, Xnau had net earnings of $500,000 and paid dividends of $60,000. Mayberry mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on Mayberry's investment account, net income, and retained earnings, respectively?

• A) Overstate, understate, understate
• B) Understate, understate, understate
• C) Understate, overstate, overstate
• D) Overstate, overstate, overstate

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Definitions:

Jointly Owned Resources

Assets or properties held in common by two or more parties, where each has an interest and rights in the utilization and management of the resources.

Structured Manager

A management approach that relies on clearly defined roles, responsibilities, and procedures to ensure efficiency and order.

Divine Right

A political and religious doctrine that asserts a monarch's legitimacy and right to rule comes directly from God, not from human consensus or consent.

Loss of Self-Awareness

A state where an individual's consciousness of their own identity and personal characteristics diminishes.