Barrett Company Received Cash of $1,000,000 from Issuing Common Stock

question 25

Multiple Choice

Barrett Company received cash of $1,000,000 from issuing common stock. As a result of this transaction, the company's debt to equity ratio will:

• A)Increase.
• B)Decrease.
• C)Remain the same.
• D)Cannot be determineD.The transaction will increase assets (cash) and increase stockholders' equity (common stock). The debt to equity ratio is total debt/total stockholders' equity. The increase in cash will not affect the ratio, but the increase in common stock will cause the ratio to go down.

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Definitions:

Giffen Good

A good for which an increase in the price raises the quantity demanded

Hunan

A province in south-central China, known for its spicy cuisine, rich cultural heritage, and historical significance.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, inversely related to income changes.

Substitution Effect

The change in consumption patterns due to a change in relative prices, causing consumers to substitute cheaper goods for more expensive ones.