Chapman Inc A) Choice a
B) Choice B
C) Choice C
D)

Multiple Choice

Chapman Inc., owns 35% of Dawson Corporation. During the calendar year 20X1, Dawson had net earnings of $300,000 and paid dividends of $30,000. Chapman mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings? $$\begin{array} { | l | l | l | l | } \hline & \text { Investment Account } & \text { Net Income } & \text { Retained Earnings } \\\hline \text { A } & \text { Understate } & \text { Overstate } & \text { Overstate } \\\hline \text { B } & \text { Overstate } & \text { Understate } & \text { Understate } \\\hline \text { C } & \text { Overstate } & \text { Overstate } & \text { Overstate } \\\hline \text { D } & \text { Understate } & \text { Understate } & \text { Understate } \\\hline\end{array}$$

A) Choice A
B) Choice B
C) Choice C
D) Choice D