What Would Happen to the Debt-To-Assets Ratio, If at the End

question 7

Multiple Choice

What would happen to the debt-to-assets ratio, if at the end of 2012, the company borrowed $1,000 from the bank by signing a promissory note and received $2,000 from the issuance of stock?

• A) This transaction would cause the debt-to-assets ratio to increase.
• B) This ratio would increase indicating a less risky financing strategy.
• C) The debt-to-assets ratio would not change because this transaction would not be
• D) recorded until 2013.
• E) This ratio would have increased even if this transaction had not occurred.

---

Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, or insurance, and must be paid regardless of business activity.

Variable Costs

Costs that vary directly with the level of production or volume of output, as opposed to fixed costs, which remain constant regardless of production levels.

Price

The amount of money required to purchase a good or service.

Income Statement

A financial statement that shows profits or losses at one point in time.