An Entity Sells an Equal Dollar Amount of Convertible Preferred

question 29

Multiple Choice

An entity sells an equal dollar amount of convertible preferred stock and long-term notes payable.Prior to these transactions,total debt was less than total equity.How did the sale of the convertible preferred stock and the long-term notes payable affect the company's debt to total assets ratio?

• A) The debt to total assets ratio would decrease.
• B) The debt to total assets ratio would increase.
• C) The debt to total assets ratio would remain the same.
• D) The effect on the debt to total assets ratio cannot be determined from the information given.

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Definitions:

Activity Variance

The difference between planned or budgeted costs and the actual costs based on the level of activity or volume, used in variance analysis.

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Production operations in printing or manufacturing where multiple units of a product are produced in sequence on a press.

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Individuals who are being transported from one place to another in a vehicle, aircraft, or vessel, usually for a fare.

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Expenses associated with operating an aircraft, which include fuel, maintenance, crew salaries, and landing fees among others.