Emerald Investments,Inc.purchased 40% of the common stock of Diamond Corporation on March 1,2018.Diamond Corporation reports a net income of $675,000 for the year 2019.Which of the following is TRUE of the balance sheet on December 31,2019?

Question

Quizplus · Accepted Answer

As Emerald Investments, Inc. owns 40% of Diamond Corporation, they are considered a significant influence on Diamond Corporation's financial statements. Therefore, Emerald Investments, Inc. will record their share of Diamond Corporation's net income in their own financial statements, which will increase their equity (investment) in Diamond Corporation. Thus, total equity will increase. Total assets and liabilities may or may not be affected by this transaction. Cash may or may not increase as it is not mentioned if Diamond Corporation pays dividends or if Emerald Investments, Inc. receives any cash from the investment.