1. Pam Company owns 25 percent of Sun Corporation. During the year, Sun had net earnings of $450,000 and paid dividends of $28,000. Pam mistakenly recorded these transactions using the cost method rather than the equity method. What effect would this have on the investment account, net earnings, and retained earnings, respectively?

a Understate, overstate, overstate b Overstate, understate, understate c Overstate, overstate, overstate d Understate, understate, understate