What effect would this have on the investment account, net income, and retained earnings, respectively? a. Understate,
What effect would this have on the investment account, net income, and retained earnings, respectively? a. Understate,
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 6MCQ
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Question
Sumpak, Inc. owns 35% of Marin Corporation. During the calendar year 2004, Marin had
net earnings of ₱300,000 and paid dividends of ₱30,000. Dane mistakenly recorded these
transactions using the fair value method rather than the equity method of accounting. Dane
recognized ₱20,000 gain on the change in fair value of the investment during the year.
What effect would this have on the investment account, net income, and
respectively?
a. Understate, overstate, overstate
b. Overstate, understate, understate
c. Overstate, overstate, overstate
d. Understate, understate, understate
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