Martin Company purchased 10% of the outstanding shares of Winn Company.Martin Company classifies the investments as trading securities.At the end of the year,the market value of the shares increased from the prior year.The increase in market value of Winn Company's shares will affect Martin Company by ________.
A) increasing cash and increasing investments
B) decreasing investments and increasing retained earnings
C) increasing investments and increasing retained earnings
D) increasing cash and increasing stockholders' equity

Question

Quizplus · Accepted Answer

As Martin Company has classified the investment as trading security, any increase in the market value of Winn Company shares will result in an increase in Martin Company's investment account (increasing investments) and increase in the fair market value of the investment, which would result in an increase in the retained earnings account (increasing retained earnings). Therefore, choice C is the correct answer. Option A and D are incorrect as only the investments' account would increase, and Option B is incorrect as Retained earnings will increase.

Martin Company Purchased 10% of the Outstanding Shares of Winn