Question

An example of a factor that mitigates doubts about an entity's ability to continue as a going concern would be _______.

A. A letter of guarantee from a parent company.
B. The ability to raise additional funds through the issuance of more stock.
C. The ability to sell an unprofitable segment of the business.
D. All of these examples are mitigating factors.

Answer 1

A mitigating factor that can help alleviate concerns about a company's ongoing viability is its capability to generate funds by issuing more stock. This not only bolsters the company's financial resources but also allows it to avoid immediate financial obligations that come with borrowing. The correct option is B.

Step-by-step explanation:

An example of a factor that mitigates doubts about an entity's ability to continue as a going concern is that the entity is able to raise additional funds through the issuance of more stock.

This action shows that the company has ways to generate the necessary financial capital to support its operations and growth without being obliged to make immediate payments, unlike borrowing through banks or bonds.

Moreover, selling stock could bring in additional resources and potentially provide input from a board of directors and shareholders who have an interest in the firm's success.