Question

In: Accounting

S Company had the following account balances: Bonds Payable $7,000 CR &n

S Company had the following account balances:

Bonds Payable $7,000 CR

Supplies $7,000 DR

Accounts Receivable $1,000 DR

Accounts Payables $5,000 CR

Building & Land $13,000 DR

Retained Earnings $4,000 DR

Cash $5,000 DR

Discount-Bonds Payable $2,000 DR

If $4,000 of the Accounts Payable were paid using cash, what would be the Debt-to-Equity Ratio taking into account the payment of the Accounts Payable?

(Round to the nearest 3rd decimal place in your answer format)

Expert Solution

All works forms part of the answer
Debt – Equity Ratio = Total Liabilities / Total Equity
Workings

Step 1: Calculate the amount of Total Equity

	Assets
	Cash	$ 5,000.00
	Accounts receivables	$ 1,000.00
	Supplies	$ 7,000.00
	Building & Land	$ 13,000.00
A	Total Assets	$ 26,000.00

	Liabilities
	Accounts Payable	$ 5,000.00
	Bonds Payable, net of discount	$ 5,000.00
B	Total Liabilities	$ 10,000.00

C = A - B	Total Equity (including Retained Earnings)	$ 16,000.00

Step 2: Calculate updated balance after payment of $ 4000 accounts payables

	Accounts Payable	$ 1,000.00
	Bonds Payable, net of discount	$ 5,000.00
A	Total Liabilities	$ 6,000.00

B [already calculated in Step 1]	Total Equity	$ 16,000.00

Answer

A	Total Debts = Total Liabilities	$ 6,000.00
B	Total Equity	$ 16,000.00
C = A/B	Debt to Equity ratio	0.375 times = ANSWER

Answer = 0.375 times = Debt to Equity Ratio

ekkarill92 answered 2 years ago

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