Benson Company received cash of $1,000,000 from issuing common stock at par value.As a result of this transaction,the company's debt-to-equity ratio will:
A)Decrease.
B)Increase.
C)Remain the same.
D)Cannot be determined.

Question

Quizplus · Accepted Answer

The receipt of cash from the issuance of common stock is an asset source transaction;the asset account Cash increases and the stockholders' equity account Common Stock also increases.The debt to equity ratio is calculated by dividing total stockholders' equity by total liabilities.This transaction does not affect the numerator but increases the denominator.As a result,this transaction causes the debt to equity ratio to decrease.

Benson Company Received Cash of $1,000,000 from Issuing Common Stock