For the Following Transaction, Identify the Type of Change That

question 1

Multiple Choice

For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
At the end of the accounting period, three months' interest is owing to the company from the bank on a term deposit with the bank.

• A) An asset decreases and a liability decreases.
• B) An asset increases and revenue increases.
• C) An asset increases and another asset decreases.
• D) None of the above

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Definitions:

Capitalized Earnings Model

A valuation method in which earnings are considered in perpetuity, with a capitalization rate determining the present value of those earnings.

P/E Ratio

Price-to-Earnings Ratio, a valuation metric calculated by dividing the market price per share by its earnings per share, indicating how much investors are willing to pay per dollar of earnings.

EPS

Earnings Per Share, a key financial metric indicating the profitability of a company, calculated as the company's profit divided by the outstanding shares of its common stock.

P/E Multiple

Price-to-Earnings ratio, a valuation metric for stocks that compares a company's market price per share to its earnings per share.