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Given the following Year 12 balance sheet data for a footwear company:
| Balance Sheet Data | |
| Cash on Hand | $ 15,000 |
| Total Current Assets | 130,000 |
| Total Fixed Assets | 290,000 |
| Total Assets | $420,000 |
| Accounts Payable | $ 20,000 |
| Overdraft Loan Payable | 0 |
| 1-Year Bank Loan Payable | 5,000 |
| Current Portion of Long-Term Bank Loans | 22,000 |
| Total Current Liabilities | 47,000 |
| Long-Term Bank Loans Outstanding | 153,000 |
| Total Liabilities |
. Advertisement . ..4.. 200,000 |
| Shareholder Equity | Year 11 Blance | Year 12 Balance | |
| Common Stock | 20,000 | 0 | 20,000 |
| Additional Capital | 120,000 | 0 | 120,000 |
| Retained Earnings | 60,000 | 20,000 | 80,000 |
| Total Shareholder Equity | 200,000 | +20,000 | 220,000 |
| Total Liabilities and Shareholder Equity | $420,000 |
Based on the above figures and the definition of the debt-assets ratio presented in the Help section for p. 5 of the Footwear Industry Report, the company’s debt-assets ratio (rounded to 2 decimal places) is
A, 0.45
B, 0.46
C, 0.40
D, 0.42
E, 0.48
♦ Relevant knowledgeThe ratio of debt asset can be one leverage ratio utilized to gauge the amount to which debt financing is utilized to help support the company’s assets. It is calculated by taking the ratio of debt to the total assets.
Answer – 0.48
Debt- Asset ratio = Debt / Asset
= 200000/ 420000
= 0.476
=0. 48 (approx)
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