An entity sells an equal dollar amount of convertible preferred stock and long-term notes payable. Prior to these transactions, total debt was less than total equity. How did the sale of the convertible preferred stock and the long-term notes payable affect the company's debt to total assets ratio?
a. The debt to total assets ratio would decrease.
b. The debt to total assets ratio would increase.
c. The debt to total assets ratio would remain the same.
d. The effect on the debt to total assets ratio cannot be determined from the information given.
B
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