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6 November, 12:09

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.

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Answers (1)
  1. 6 November, 12:30
    0
    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.
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