1. A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet?

A. Equity rises $250,000; net plant and equipment falls $250,000.

B. Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.

C. Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.

D. Cash rises $250,000; net plant and equipment falls $250,000.

2. A times-interest-earned ratio of 3.5 indicates that the firm:

A. pays 3.5 times its earnings in interest expense.

B. has interest expense equal to 3.5% of EBIT.

C. has interest expense equal to 3.5% of net income.

D. has EBIT equal to 3.5 times its interest expense.