Question

Company A has total assets of $130,000 and $ $30,000 in equity. Company B has a...

Company A has total assets of $130,000 and $ $30,000 in equity. Company B has a debt-to-equity ratio of 2.50. What can be said regarding these companies? (Check all that apply.)

A.

It is not possible to calculate the debt-to-equity ratio for Company A.
B.

Company A has $100,000 in liabilities.  
C.

Company A is more solvent than Company B.
D.

The debt-to-equity ratio of Company A is 76.9%.
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Homework Answers

Answer #1

The correct answer is B, only

The company A has total assets of 130000 and we know that,

Total Assets = Total liabilities + Equity

130000 = total liabilities + 30000

Total liability = 100000 ( option B is correct)

The total liability consist of short term debt and long term debt.So,

Debt = 100000

Equity = 30000

Debt equity ratio of Company A = 100000 / 30000

= 3.33 Times

The company B is more solvent than company A as it has good debt to equity ratio than company A , The ideal is 2. Times.

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