QUESTION 5 What effect will the issuance of common stock for

QUESTION 5 What effect will the issuance of common stock for cash at year-end have on the following ratios? Return on Total Assets Increase Increase Decrease Decrease Debt-to-Equity Ratio A) B) C) D) 0 Item A 0 Item B 0 Item C 0 Item D Increase Decrease Increase Decrease

Solution

Return on total assets = Net income/Total assets

Debt-to-equity ratio = Debt/Equity

If common stocks issued for cash, total assets will increase and equity will also increase.

Hence, correct option is “Item D”