Below is the common equity section (in millions)The firm has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?
A) The company's net income in 2011 was higher than in 2010.
B) The firm issued common stock in 2011.
C) The market price of the firm's stock doubled in 2011.
D) The firm had positive net income in both 2010 and 2011, but its net income in 2011 was lower than it was in 2010.
E) The company has more equity than debt on its balance sheet.

Question

Quizplus · Accepted Answer

The common equity section does not provide any information about the firm's net income or the market price of its stock. However, the fact that the firm has never paid a dividend to its common stockholders suggests that it has retained all of its earnings, which could explain the increase in common equity. The issuance of common stock would also increase common equity, so option B is the best choice. Option E cannot be determined solely from the information provided. Option D is contradicted by the statement that the firm's common equity increased.

Below Is the Common Equity Section (In Millions)The Firm Has