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:

Spermatozoon

A male reproductive cell, or sperm cell, that carries a man's DNA to the female ovum.

Fallopian Tube

A pair of tubes along which eggs travel from the ovaries to the uterus.

Low-dose X-ray

Imaging technique that uses a small amount of ionizing radiation to produce pictures of the inside of the body.

Vaginal Discharge

Fluids secreted from the vagina, which can vary in color and consistency and may indicate health status.