Brown Company purchased common stock in Black Company. Brown Company treats the investment as available-for-sale securities. During the current year, Black Company earned $4,000,000 and paid dividends of $1,000,000. Assume that Brown Company owns 10% of the outstanding shares of Black Company. Black Company's net income will affect Brown 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
What is the reasoning behind your answer?