Kang's Management Has the Option of Converting $100,000 in Debt

Multiple Choice

Kang's management has the option of converting $100,000 in debt into common shares of the company.What impact would the conversion have on the company's solvency as measured by the debt-to-total-assets and its liquidity as measured by the current ratio?

A) The solvency would improve, but the liquidity would deteriorate.
B) Both the solvency and the liquidity would improve.
C) The solvency would improve, but the liquidity would remain unchanged.
D) The solvency would not be affected, but the liquidity would improve.