Question

At the beginning of the current year, Snell Co. total assets were $274,000 and its total...

    At the beginning of the current year, Snell Co. total assets were $274,000 and its total liabilities were $187,200. During the year, the company reported total revenues of $119,000, total expenses of $89,000 and dividends of $18,000. There were no other changes in equity during the year and total assets at the end of the year were $286,000. The company's debt ratio at the end of the current year is:

    Multiple Choice

    • 52.8%.

    • 68.3%.

    • 146.00%.

    • 65.5%.

    • 34.5%.

    Business   Accounting   
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    Homework Answers

    Answer #1

    Debt ratio = Total liabilities/Total assets

    Net profit = Revenue - Expenses

    = 119,000 - 89,000

    = $30,000

    Dividend paid = $18,000

    Net Increase in earnings = 30,000 - 18,000

    = $12,000

    But this transaction will not affect the liabilities as the dividend is paid and the Increase in earnings will affect the equity.

    Therefore

    Liabilities = 187,200

    Asset = 286,000

    Debt ratio = 187,200/286,000

    = 65.5%

    Therefore the correct option is 4th.

    If you find the answer helpful please upvote.

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