Jeff Company purchased common stock in Garcia Company.Jeff Company treats the investment as available-for-sale securities.During the current year,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jeff Company owns 10% of the outstanding shares of Garcia Company.Garcia Company's net income will affect Jeff Company by ________.
A)increasing cash and investments by $400,000
B)increasing stockholders' equity and investments by $400,000
C)increasing cash and stockholders' equity by $400,000
D)no effect

Question

Quizplus · Accepted Answer

Since Jeff Company treats the investment as available-for-sale securities, Garcia Company's net income does not directly affect Jeff Company's financial statements. Only the dividends received would affect Jeff Company's cash and income.

Jeff Company Purchased Common Stock in Garcia Company