Question

Given the following Year 12 balance sheet data for a footwear company:

Balance Sheet Data
Cash on Hand 5,000
Total Current Assets 70,000
Total Assets 300,000
Overdraft Loan Payable 3,000
1-Year Bank Loan Payable 15,000
Current Portion of Long-Term Loans 20,000
Total Current Liabilities 55,000
Long-Term Bank Loans Outstanding 100,000
Shareholder Equity: Year 11 Balance Year 12 Change
Common Stock 10,000 0 10,000
Additional Capital 110,000 0 110,000
Retained Earnings 15,000 10,000 25,000
Total Shareholder Equity 135,000 +10,000 145,000

Based on the above figures and the formula for calculating the debt-assets ratio, the company's debt-assets ratio (where debt is defined to include both short-term and long-term debt) is
Given the following Year 12 balance sheet data for
a. 0.127
b. 0.45
c. 0.33
d. 0.40
e. 0.46.

Answer 1

Answer:

e. 0.46

Explanation:

The computation of debt assets ratio is given below:-

Debt assets ratio = (Short term debt + Long term debt) ÷ Total assets

= ((Overdraft loan + 1 year loan Current long term loan) + Long term loan) ÷ Total assets

= (($3,000 + $15,000 + $20,000) + $100,000) ÷ $300,000

= ($38,000 + $100,000) ÷ $300,000

= $138,000 ÷ $300,000

= 0.46

So, for computing the debt assets ratio we simply applied the above formula.