Joan Steel Inc.purchases 10,000 shares of Smith Metals Inc.for $34,000 in exchange for cash and now holds 3.2% voting stock of Smith Metals Inc.Assuming no other transaction happened during the year,the ________ in the balance sheet will increase.

Question

Quizplus · Accepted Answer

Since Joan Steel Inc. purchased 10,000 shares of Smith Metals Inc. as a long-term investment, the balance sheet item that will increase is the long-term investments. This is because the shares purchased are expected to be held for more than one year and therefore qualify as a long-term investment. The cash used to purchase the shares will decrease, but this will not impact the balance sheet directly. Total assets may increase, but this will depend on whether the change in long-term investments is offset by any other changes in assets or liabilities. Current assets, however, are not impacted by this transaction since this investment is expected to be held for more than one year.