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1. Flimsy Safe Room’s, Inc. has total assets of $1,000,000. The firm has $100,000 in inventory....

1. Flimsy Safe Room’s, Inc. has total assets of $1,000,000. The firm has $100,000 in inventory. It has $300,000 in long-term debt and $400,000 in current assets. The common stockholders’ equity is $400,000. The firm does not have any preferred stock outstanding. What is Flimsy Safe Room's total debt ratio defined as total liabilities to total assets?

Question 1 options: A) 0.6 = 60% B) 0.4 = 40% C) 0.5 = 50% D) 0.3 = 30%

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Answer #1

Total Assets = $1,000,000 = Total Liabilities

Total Liabilities = Long term debt + Equity + Other Liabilities

$1,000,000 = $300,000 +$400,000 +Other Liabilities

Other Liabilities =$1,000,000 - $700,000 =$300,000

Total Liabilities = Long term debt+Other Liabilities = $300,000 +$300,000 =$600,000

Flimsy Safe Room's total debt ratio defined as total liabilities to total assets = $600,000/$1,000,000 =0.6

=60%

Option A is the answer.

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