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Each Transaction Listed Relates to a Long-Term Investment in Equity

Question 110

Matching

Each transaction listed relates to a long-term investment in equity securities., match each transaction to the accounting effects . Transactions may have more than one answer.

Premises:
Using the equity method, the market price of the investment increases above its cost.
Using the mark-to-market method, the market price of the investment increases above its cost.
Using the equity method, the investee company recognizes a net loss for the year.
An investment in a 40%-owned subsidiary is sold for more than its carrying value.
Responses:
Increase assets
Increase shareholders’ equity (Contributed Capital)
Increase shareholders’ equity (Retained Earnings)
Decrease liabilities
Decrease shareholders’ equity (Retained Earnings)
Decrease assets
Increase liabilities
The event is not communicated on financial statements.

Correct Answer:

Increase assets
Increase shareholders’ equity (Contributed Capital)
Increase shareholders’ equity (Retained Earnings)
Decrease liabilities
Decrease shareholders’ equity (Retained Earnings)
Decrease assets
Increase liabilities
The event is not communicated on financial statements.
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