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.

---

Definitions:

Marginal Revenue

The extra revenue generated from the sale of an additional unit of a product or service.

Deadweight Loss

The reduction in total surplus that results from a market distortion, such as a tax, subsidy, or price control.

Society's Welfare

A measure of the overall well-being and quality of life of the members of a society, often considered in economic terms but also including factors like health, education, and environmental quality.

Monopolist

An entity that is the sole provider of a particular product or service in the market, having significant control over pricing.