Mamantor Company had a debt to equity ratio of 0.600. The company received a loan. The effect of the transaction is:
A) The ratio decreased.
B) The ratio remained the same.
C) The ratio increased.
D) There is insufficient information to predict the effect.

Question

Quizplus · Accepted Answer

This transaction increases cash and total liabilities. Because only the numerator in the ratio (Total liabilities / Total stockholders' equity) is affected and it is increased, the ratio increases also.

Mamantor Company Had a Debt to Equity Ratio of 0