Question

At the beginning of the current year, Trenton Company's total assets were $274,000 and its total liabilities were $188,000. During the year, the company reported total revenues of $119,000, total expenses of $89,000 and owner withdrawals of $18,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $286,000. Trenton Company's debt ratio at the end of the current year is:

Answer 1

Answer:

The correct answer is 65.7%

Explanation:

According to the given scenario, the calculation of the debt ratio is as follows;

But prior to that the following calculations are needed

Ending total assets $286,000

Less: Ending stockholders equity  

opening stockholders equity($274,000 - $188,000) $86,000  

Add: Revenue      $119,000  

Less: Expenses    $89,000  

Less: Dividends $18,000  

Ending stockholders equity  $98,000

ending liabilities  $188,000

Now

debt ratio = Total liabilities ÷ total assets

=  $188,000 ÷ $286,000

= 65.7%

hence, the debt ratio is 65.7%