Question
HK, Inc., owns 40% of Hannah Corporation. During the calendar year 2018, Hannah had net earnings of $100,000 and paid dividends of $80,000. HK mistakenly
HK, Inc., owns 40% of Hannah Corporation. During the calendar year 2018, Hannah had net earnings of $100,000 and paid dividends of $80,000. HK mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively?
| a. | Understate, overstate, overstate
| |
| b. | Overstate, understate, understate
| |
| c. | Understate, understate, understate | |
| d. | Overstate, overstate, overstate |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
