A corporation using the equity method of accounting for its investment in a 40 percent-owned investee, which earned $20,000 and paid $5,000 in dividends, made the following entries:

What effect will these entries have on the investor’s statement of financial position?

a. Financial position will be fairly stated.

b. Investment in the investee will be overstated, retained earnings will be understated.

c. Investment in the investee will be understated, retained earnings will be understated.

d. Investment in the investee will be overstated, retained earnings will be overstated.

Transcribed Image Text:

Investment in Investee Income from Investee 8,000 Cash Dividend Revenue 2,000 8,000 2,000