Question

BSO, Inc. has assets of $670,000 and liabilities of $502,500 resulting in a debt-to-assets ratio of 0.75. For each of the following transactions, determine whether the debt-to-assets ratio will increase, decrease, or remain the same, and enter the value of the new debt-to-assets ratio

1. purchaed 34,000 of new inventory on credit 2.paid accounts payable in the amount of 71,000 3. recorded accrued salaries in the amount of 135,000 4.borrowed 285,000 from the bank to be paid in 90 days

Answer 1

			New Debt - Assets Ratio
Sl. No	Particulars	Increase or Decrease	Working	Debt-to-assets ratio
1	Purchaed 34,000 of new inventory on credit	Increase	($502,500 + $34,000) / ($670,000 + $34,000)  = $536,500 / $704,000	0.76
2	Paid accounts payable in the amount of 71,000	Decrease	($502,500 - $71,000) / ($670,000 - $71,000)  = $431,500 / $599,000	0.72
3	Recorded accrued salaries in the amount of 135,000	Increase	($502,500 + $135,000 ) / $670,000 = $637,500 / $670,000	0.95
4	orrowed 285,000 from the bank to be paid in 90 days	Increase	($502,500 + $285,000) / ($670,000 + $285,000)  = $787,500 / $955,000	0.82