Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellow's:
A) Option A
B) Option B
C) Option C
D) Option D

Question

Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellow's: 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

The bond issue increases both assets and liabilities. Assets are the denominator in the return on assets so that ratio will decrease; liabilities are the numerator in the debt to equity ratio so that ratio will increase.