Before adjusting its current investments in equity securities, Patton Company has total current assets and current liabilities of $200,000 and $60,000, respectively. During the current year, Patton has net income of $20,000 before the effects of any market value adjustments with 30,000 shares of common stock outstanding. Included in current assets are trading securities recorded at their original cost of $100,000 and available-for-sale investments recorded at their original cost of $7,000. The current market value of both investments increased by 15%. Patton properly accounts for both securities.
A. Determine how Paton's current ratio and earnings per share will be affected by the yearend adjustments for its investments.
B. Determine how the current ratio and earnings per share will differ if the available-for-sale investment is classified as long-term.

Question

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The Answer of Before adjusting its current investments in equity securities, Patton Company has total current assets and current liabilities of $200,000 and $60,000, respectively. During the current year, Patton has net income of $20,000 before the effects of any market value adjustments with 30,000 shares of common stock outstanding. Included in current assets are trading securities recorded at their original cost of $100,000 and available-for-sale investments recorded at their original cost of $7,000. The current market value of both investments increased by 15%. Patton properly accounts for both securities.
A. Determine how Paton's current ratio and earnings per share will be affected by the yearend adjustments for its investments.
B. Determine how the current ratio and earnings per share will differ if the available-for-sale investment is classified as long-term.

Before Adjusting Its Current Investments in Equity Securities, Patton Company