Question

The firm has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year, non-callable, long-term debt in 2013. As of the end of 2014, none of the principal on this debt had been repaid. Assume that the company's sales in 2013 and 2014 were the same. Which of the following statements must be CORRECT?

Answer 1

Answer:

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Below are the 2012 and 2013 year-end balance sheets for Tran Enterprises:

Assets:                          Year 2013         Year 2012

Cash                            $ 200,000          $ 170,000

Accounts receivable     864,000            700,000

Inventories                     2,000,000            1,400,000

Total current assets     $3,064,000    $2,270,000

Net fixed assets             6,000,000             5,600,000

Total assets                     $9,064,000     $7,870,000

Liabilities and equity:

                                             Year 2013                         Year 2012

Accounts payable               $1,400,000               $1,090,000

Notes payable to bank  1,600,000                     1,800,000

Total current liabilities         $3,000,000               $2,890,000

Long-term debt                 2,400,000                 2,400,000

Common stock                 3,000,000                 2,000,000

Retained earnings                 664,000                   580,000

Total common equity         $3,664,000                $2,580,000

Total liabilities and equity $9,064,000 $             7,870,000

The firm has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year, non-callable, long-term debt in 2012. As of the end of 2013, none of the principal on this debt had been repaid. Assume that the company's sales in 2012 and 2013 were the same. Which of the following statements must be CORRECT?

a.

The firm issued long-term debt in 2013.

b.  

The firm issued new common stock in 2013.

c.  

The firm had negative net income in 2013.

d.  

The firm increased its short-term bank debt in 2013.

e.

The firm repurchased some common stock in 2013.

Answer

Explanation:

b : The firm issued new common stock in 2013.

At the end of 2012 , common stock balance  is $ 2000000 and at the end of 2013 common stock balance is 3000000. Thus, the firm increased the new common stock in 2013