Question

As a bank loan officer, you are considering a loan application by Bama Bart's Sporting Goods. The company has provided you with its balance sheet and income statement, which contain the following information: the firm's only current assets are $25,000 in cash, $45,000 in accounts receivable, and $140,000 in inventory. It has no marketable securities. The firm also has $190,000 in fixed assets, but no intangible assets. It has $70,000 in current liabilities and its long-term liabilities are $90,000. By using some of this information, you can conclude that Bama Bart's debt to owners' equity ratio (rounded to the nearest tenth of a percent) is:

Answer 1

Answer:

debt to owners' equity ratio 67%

Explanation:

debt to owner's equity:

Cash                              25,000

Accounts receivable    45,000

Inventory                      140,000  

Total current assets     210,000

Fixed Assets                 190,000

Total Assets:                 400,000

Liablities 70,000 + 90,000 = 160,000

Using the accounting equation we solve for equity:

 Assets    =   Liabilies +     Equity

400,000   =  160,000  +    Equity

400,000 - 160,000 = Equity = 240,000

debt to equity:

160,000/240,000 = 0.67