Question

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.)

Debt-to- Assets Ratio a. Purchased $66,000 of new inventory on credit. b. Paid accounts payable in the amount of $119,000. c. Recorded accrued salaries in the amount of $215,000. Borrowed $365,000 from a local bank, to be repaid in 90 Increase Decrease Increase d. days. Increase

Answer 1

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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