Question

At the beginning of the current year, Snell Co. total assets were $282,000 and its total liabilities were $191,200. During the year, the company reported total revenues of $127,000, total expenses of $93,000 and dividends of $22,000. There were no other changes in equity during the year and total assets at the end of the year were $294,000. The company's debt ratio at the end of the current year is:

A: 35.0%.

B: 65.0%.

C: 67.8%

D: 147.00%

E: 53.8%

Answer 1

Hi,

I have solved this question by using financial ratio i.e. debt ratio, as total assets and liabilities already given in the question. We can calculate the closing balance of total assets and liabilities, by making adjustment of transaction made during the current year like increase in profit.

			Answer
1)	Calculation of the debt ratio of Company
	Debt Ratio           =	Total Liabilities
			Total Assets
		=	191,200
			294,000
		=	65.0%
	Answer	B
	Working Note:-
a)	Statement of Profit
				Amount $
	Total Revenue		127,000
	Less :- Total Expenses		93,000
	Less:-			22,000
	Profit			12,000
b)	Calculation of Change in total Assets
				Amount $
	Opening total Assets		282,000
	Add :- Profit		12,000
	( Assumed increase in Cash
	balance due to profit )
	Closing total Assets		294,000