Matching Questions
1.Each transaction numbered 1 through 5 below involves an equity security originally acquired at a cost of $1,000. Identify the effect each transaction has on the current ratio and earnings per share by selecting from the effects listed in
a
through
f. You may use each letter more than once or not at all.
Effects
|
a.Increase in current ratio and earnings per share.
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b.Does NOT change earnings per share or the current ratio.
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c.Does NOT change earnings per share; may impact the current ratio under certain conditions.
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d.Decrease in current ratio and earnings per share.
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e.Increases earnings per share.
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f.Can’t determine the direction of changes in at least one ratio from the event given.
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____1.Trading securities with a current balance sheet value of $1,200 are sold for $1,100.
____2.Trading securities with a current balance sheet value of $800 are sold for $800.
____3.Trading securities with a current balance sheet value of $1,200 are sold for $1,300.
____4.Available-for-sale securities have a market value of $800 at yearend.
____5.Available-for-sale securities have a market value of $1,200 at yearend.
2.
Each transaction listed in 1 through 4 relates to an investment in a long-term equity security. Place the letter that corresponds to the effect (a
through
h) the transaction has on the accounting equation in the space provided. You may use each letter more than once or not at all.
Accounting Effects
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a. + A and + L
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b. + A and + SE (Contributed Capital)
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c. + A and + SE (Retained Earnings)
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d. – A and – L
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e. – A and – SE (Contributed Capital)
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f. – A and – SE (Retained Earnings)
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g. + A and – A
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h. The event is not reported on financial statements.
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____1.Under the cost method, the investee company declares a cash dividend.
____2.Under the equity method, the investee company declares a cash dividend.
____3.Under the cost method, the investee company recognizes net income.
____4.Under the equity method, the investee company recognizes net income.