Question

Franklin Corporation invested​ $100,000 to acquire​ 20,000 shares of Hope​ Technologies, Inc. on March​ 1, 2018. Hope pays a cash dividend of​ $0.25 per share on July​ 2, 2019. The investment is classified as equity securities with no significant influence. Based on these two​ transactions, which of the following is true of the accounting equation as of July​ 2, 2019? .

A. Total liabilities in the balance sheet will increase. B. Current assets in the balance sheet will remain unchanged. C. Total assets in the balance sheet will remain unchanged. D. Equity in the balance sheet will increase.

Answer 1

D. Equity in the balance sheet will increase

Step-by-step explanation:

Accounting Equation is expressed as,

Assets = Liabilities + Equity

When shares are acquired by a company for cash, the journal entry is,

Investments A/C Dr. 100,000

To Cash A/C 100,000

(Being shares acquired recorded)

The effect on accounting equation would be,

Increase in Assets as investments increase, decrease in assets as cash decreases. Net effect will be NO EFFECT on accounting equation.

When dividend is declared and received, the journal entry is,

Cash A/c Dr.5000

To Dividend Received 5000

The effect of the above transaction would be an increase in the equity balance.