BSO, Inc., has assets of $830,000 and liabilities of $622,500 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. Each item is independent. (Round your answers to 2 decimal places.)
Solution:
Debt to Asset Ratio |
||
Current |
0.75 |
|
a. |
Increase |
0.77 |
b. |
Decrease |
0.71 |
c. |
Increase |
1.01 |
d. |
Increase |
0.83 |
Working:
Debt to Asset Ratio |
||
Current |
Total Debt |
$622,500 |
Total Assets |
$830,000 |
|
Debt to Asset Ratio |
0.75 |
|
a. |
Total Debt (622,500 + Accounts Payable 66,000) |
$688,500 |
Total Assets (830,000 + Inventory 66,000) |
$896,000 |
|
Debt to Asset Ratio |
0.77 |
|
b. |
Total Debt (622,500 - Paid Accounts Payable 119,000) |
$503,500 |
Total Assets (830,000 - Cash 119,000) |
$711,000 |
|
Debt to Asset Ratio |
0.71 |
|
c. |
Total Debt (622,500 + Accrued Salaries 215,000) |
$837,500 |
Total Assets |
$830,000 |
|
Debt to Asset Ratio |
1.01 |
|
d. |
Total Debt (622,500 + Loan 365,000) |
$987,500 |
Total Assets (830,000 + Cash 365,000) |
$1,195,000 |
|
Debt to Asset Ratio |
0.83 |
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