Dim Co.issues common stock of $15,000.Which of the following statements regarding the effect of this transaction on the company's liquidity and profitability metric is true?
A) The transaction increases the liquidity and decreases the profitability of the company.
B) The transaction decreases the liquidity and increases the profitability of the company.
C) The transaction increases the liquidity and has no effect on the profitability of the company.
D) The transaction has no effect on the liquidity and increases the profitability of the company.

Question

Dim Co.issues common stock of $15,000.Which of the following statements regarding the effect of this transaction on the company's liquidity and profitability metric is true?​
A) ​The transaction increases the liquidity and decreases the profitability of the company.
B) ​The transaction decreases the liquidity and increases the profitability of the company.
C) ​The transaction increases the liquidity and has no effect on the profitability of the company.
D) ​The transaction has no effect on the liquidity and increases the profitability of the company.

Quizplus · Accepted Answer

Issuing common stock increases a company's cash (and therefore its liquidity) without directly affecting its net income or expenses, thus having no effect on profitability metrics.

Dim CoIssues Common Stock of $15,000