Fey Corporation uses the equity method of accounting for its investment in a 30%-owned investee that earned $56,000 and paid $18,000 in dividends.
As a result, Fey Corporation made the following entries:
Equity Investment16,800
Equity Income16,800
Cash5,400
Dividend Revenue5,400
What effect will these entries have on Fey Corporation's balance sheet?
A. Investment understated; retained earnings understated
B. Investment overstated; retained earnings understated
C. Investment overstated; retained earnings overstated
D. No effect
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