Company a and Company B Are Identical in All Regards

question 7

Multiple Choice

Company A and Company B are identical in all regards except that during Year 1 Company A borrowed $40,000 at an interest rate of 10%.In contrast,Company B obtained financing by acquiring $40,000 from sale of common stock.Company B agreed to pay a $4,000 cash dividend each year.Both companies are in a 30% tax bracket.Which company would show the greater retained earnings at the end of Year 1,and by what amount?

• A)Company A's retained earnings would be higher by $4,000.
• B)Company B's retained earnings would be higher by $2,800.
• C)Company A's retained earnings would be higher by $1,200.
• D)Both would show the same retained earnings.

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Definitions:

Quebec Act

A 1774 act of the British Parliament that set procedures of governance in the Province of Quebec and was viewed by the thirteen American colonies as a direct threat to their governance and land claims.

Parliamentary Intent

The purpose or goal that a legislature had in mind when drafting and passing a law, often considered in legal interpretations.

Colonial Government

A form of government established in a colony by a colonial power, where the external power retains significant control over the colony’s governance, often exploiting its resources and people for its own benefit.

Real Whigs

A term referring to 18th-century British and colonial American political philosophers who advocated for the protection of personal liberty and property against government oppression.