Reference no: EM132508763
Question - On May 1, 2020, Rennet acquired 40% of Zanzibar Corp and is the largest shareholder of Zanzibar Corporation. During 2020, Zanzibar reported net income of $60,000. On June 1, 2020, Zanzibar Corp declared and paid $10,000 in dividends. At December 31, 2020, the market value of the stock was $5,000 greater than the purchase price. In 2020, there was no beginning balance in the SFVA account.
Rennet mistakenly recorded the transactions using the fair market value method, instead of using the equity method of accounting.
What effect would this error have upon the total assets of Rennet shown on the December 31, 2020 balance sheet? Ignore tax considerations.
What effect would this error have upon the net income of Rennet on the December 31, 2020 income statement? Ignore tax considerations.
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