The balance sheet indicates that Paul Corporation owns 40 percent of the common stock of Sun Company. During Year 2, Sun Company earned $12,000 and paid $4,000 of dividends. Paul Corporation made the following entries on its books during the year. Investment in Company B . . . . . . . . . . . . . . . . . . . . . 4,800 Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . .
. . 4,800 Net income of Paul Corporation includes $4,800 of equity income. It received only $1,600 of cash. The T-account work sheet for preparing the statement of cash flows
a. adds $3,200 to net income in deriving cash from operations.
b. subtracts $1,600 from net income in deriving cash from operations.
c. adds $1,600 to net income in deriving cash from operations.
d. subtracts $3,200 from net income in deriving cash from operations.
e. adds $3,200 to retained earnings in deriving cash from investing.
D
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