Garza, Inc. and Marx, Inc. each had the same financial position on 1/1/13. The following is a summary of each of their balance sheets as of 1/1/13: Garza is about to raise $200,000 in cash by issuing bonds. Marx is going to raise $200,000 on the same day by issuing common stock. Immediately after these transactions, which of the following statements will be correct?

Question

Garza, Inc. and Marx, Inc. each had the same financial position on 1/1/13. The following is a summary of each of their balance sheets as of 1/1/13:  Garza is about to raise $200,000 in cash by issuing bonds. Marx is going to raise $200,000 on the same day by issuing common stock. Immediately after these transactions, which of the following statements will be correct?

Quizplus · Accepted Answer

When Garza issues bonds, both assets and liabilities will increase by the same amount. Assuming debt was lower than assets before the bond issuance, Garza's debt to asset ratio will go up. When Marx issues common stock, assets and equity will increase. This will cause Marx's debt to assets ratio to go down.