Company a and Company B Are Identical in All Regards

question 131

Multiple Choice

Company A and Company B are identical in all regards except that during 2013 Company A borrowed $20,000 at an interest rate of 10%. In contrast, Company B obtained financing by acquiring $20,000 from sale of common stock. Company B agreed to pay a $2,000 cash dividend each year. Both companies are in a 30% tax bracket. Which company would show the greater retained earnings at the end of 2013, and by what amount?

• A)Company A's retained earnings would be higher by $2,000.
• B)Company B's retained earnings would be higher by $1,400.
• C)Company A's retained earnings would be higher by $600.
• D)Both would show the same retained earnings.

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Definitions:

Valence Electrons

Electrons located in the outer orbit of an atom.

Maximum Number

The highest value in a given set or range.

Matter

Anything that occupies space.

Mass

A property of physical objects that measures the amount of matter in an object, affecting its resistance to acceleration under a force.