Smith Company has total assets, liabilities, and shareholders' equity of $22,000, $7,000, and $15,000, respectively, at the beginning of 2017. At the end of 2017, total assets, liabilities, and shareholders' equity were reported at $20,000, $5,000, and $15,000, respectively.
A. How much additional debt can Smith incur and still have its debt/equity ratio remain less than or equal to 1.00?
B. What information does the debt/equity ratio provide you?

Question

Quizplus · Accepted Answer

The Answer of Smith Company has total assets, liabilities, and shareholders' equity of $22,000, $7,000, and $15,000, respectively, at the beginning of 2017. At the end of 2017, total assets, liabilities, and shareholders' equity were reported at $20,000, $5,000, and $15,000, respectively.
A. How much additional debt can Smith incur and still have its debt/equity ratio remain less than or equal to 1.00?
B. What information does the debt/equity ratio provide you?

Smith Company Has Total Assets, Liabilities, and Shareholders' Equity of $22,000