A firm's balance sheet shows the following changes over the most recent quarter: Cash increases by $1,000,000,long-term assets increase by $3,000,000,accounts payable increase by $750,000,long-term-debt increases by $1,000,000,retained earnings increase by $1,250,000,and new equity increases by $1,000,000.Which of the following statements must be TRUE?
A)Cash was a $1,000,000 source of funds for the firm.
B)Long-term debt was a $1,000,000 source of funds for the firm.
C)Because retained earnings increased by more than $500,000,the firm could not have realized a profit for the quarter.
D)All of the new equity must have been provided by investors who were not shareholders prior to the issuance of new equity.

Question

Quizplus · Accepted Answer

Long-term debt increasing by $1,000,000 means the firm borrowed this amount, making it a source of funds. Cash increases as a result of various transactions and does not directly indicate it was a source. Retained earnings increasing indicates profitability, not the absence of it. New equity can come from existing shareholders or new investors; the statement doesn't specify the source.

A Firm's Balance Sheet Shows the Following Changes Over the Most