At the end of last year, Cessa Company had total assets in the amount of $4,000,000 and total liabilities in the amount of $3,000,000. The company sold stock to new stockholders at the beginning of the current year for $1,000,000. As a direct result of this transaction, the:
A) debt-to-assets ratio will decrease.
B) asset turnover ratio will increase.
C) net profit margin ratio will increase.
D) net profit margin ratio will decrease.

Question

Quizplus · Accepted Answer

Selling stock to new stockholders increases the amount of equity in the company and reduces the amount of liabilities, thereby decreasing the debt-to-assets ratio. The asset turnover ratio and net profit margin ratio are not directly affected by this transaction.

At the End of Last Year, Cessa Company Had Total