QUESTION 5 A B C D O Item A 0 Item B O Item C Return on Tota

QUESTION 5 A) B) C) D) O Item A 0 Item B O Item C Return on Total Assets Increase Increase Decrease Decrease Debt-to-Equity Ratio Increase Decrease Increase Decrease Item D

Solution

Correct Answer (D) Decrease in Return on Total Assets and decrease in Debt to equity ratio.

Explanation

As stock is issued at the end of year income did not increase in proportion to increase in assets. Cash asset will increase and return on total asset will decrease.

When Common stock is issue for cash, portion of shareholder’s equity increase and ratio of debt to equity decrease.