At the beginning of the current year,Trenton Company's total assets were $248,000 and its total liabilities were $175,000.During the year,the company reported total revenues of $93,000,total expenses of $76,000 and dividends of $5,000.There were no other changes in equity during the year and total assets at the end of the year were $260,000.Trenton Company's debt ratio at the end of the current year is:
A)70.6%.
B)67.3%.
C)32.7%.
D)48.6%.
E)1.42%.

Question

Quizplus · Accepted Answer

Debt ratio is calculated by dividing total liabilities by total assets. 
At the beginning of the year: 
Debt ratio = Total liabilities / Total assets 
Debt ratio = $175,000 / $248,000 
Debt ratio = 0.7056 or 70.56%

During the year, there were no changes in equity except for the payment of dividends. 
Total Revenues = $93,000 
Total Expenses = $76,000 
Net Income = Total Revenues - Total Expenses 
Net Income = $93,000 - $76,000 
Net Income = $17,000

Since there were no other changes in equity during the year, the increase in total assets can be attributed to the net income generated during the year. 
Total assets at the end of the year = $260,000

Using this information, we can calculate the total liabilities at the end of the year: 
Total assets = Total liabilities + Equity 
$260,000 = Total liabilities + ($248,000 - $175,000 - $17,000) 
$260,000 = Total liabilities + $56,000 
Total liabilities = $204,000

Now we can calculate the debt ratio at the end of the year: 
Debt ratio = Total liabilities / Total assets 
Debt ratio = $204,000 / $260,000 
Debt ratio = 0.7846 or 78.46%

Therefore, the answer is B (67.3%).

At the Beginning of the Current Year,Trenton Company's Total Assets