A Company Issues $20 Million in New Stock

question 54

Multiple Choice

A company issues $20 million in new stock.It later uses the cash received to pay off promissory notes.How many different accounts and which account names are affected by these two transactions?

• A)3 accounts involved: contributed capital,cash,and notes payable.
• B)4 accounts involved: contributed capital,cash,investments,and notes payable.
• C)3 accounts involved: cash,contributed capital,and accounts payable.
• D)3 accounts involved: contributed capital,investments,and accounts payable.

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Definitions:

Retained Earnings

The portion of net income that is retained by the corporation rather than distributed to its owners as dividends.

Base Year

A specific year or period selected as a reference point for comparison with subsequent years or periods in financial and economic analyses.

Net Income

The amount of earnings left after all expenses, including taxes and interest, have been deducted from total revenue; it represents the profit a company makes.

Acid-Test Ratio

A financial metric that measures a company's ability to pay off its current liabilities with its quick assets.