Jabba Inc. owns 35% of Hutt Corp., and has significant influence over Hutt. During the calendar year 2023, Hutt reported net income of $300,000 and paid dividends of $30,000. Jabba mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on Jabba's investment account, net income, and retained earnings, respectively?

A) understate, overstate, overstate
B) overstate, overstate, overstate
C) understate, understate, understate
D) overstate, understate, understate

Question

10-06-2024
Business

Answered

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Jabba Inc. owns 35% of Hutt Corp., and has significant influence over Hutt. During the calendar year 2023, Hutt reported net income of $300,000 and paid dividends of $30,000. Jabba mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on Jabba's investment account, net income, and retained earnings, respectively?

A) understate, overstate, overstate
B) overstate, overstate, overstate
C) understate, understate, understate
D) overstate, understate, understate

Sagot :

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