Question

Gerken Company concluded at the beginning of 2021 that the company's ownership interest in DillCo had increased to the point that it became appropriate to begin using the equity method to account for the investment. The balance in the investment account is $69,000 at the time of the change, and accountants working with company records determined that the balance would have been $81,000 if the account had been adjusted for investee net income and dividends as prescribed by the equity method. After implementing the change to the equity method, if financial statements were prepared:

Answer 1

Answer:

NET INCOME will remain the same or remain unchanged while the RETAINED EARNINGS will be greater by the amount of $12,000

Explanation:

Based on the information given we were told that the balance in the investment account was the amount of $69,000 in which we were still told that at the time when the change occured the accountants who was working with the company records shows that the balance would have been the amount of $81,000 which means that after the change is been implemented to the equity method, if financial statements were prepare the NET INCOME will remain the same or remain unchanged while the RETAINED EARNINGS will be greater by the amount of $12,000 ($81,000-$69,000).