A company has assets of $10 million and liabilities of $7 million.Liabilities include $4 million in accounts payable,$2 million in long-term notes payable and $1 million in other non-current liabilities.If a financial web site uses non-current liabilities rather than total liabilities to calculate the company's debt-to-assets ratio,the web site will report a ratio of:
A)0.5.
B)0.4.
C)0.3.
D)0.1.

Question

Quizplus · Accepted Answer

Debt-to-assets ratio is calculated by dividing total liabilities by total assets. However, in this case, the financial website is using non-current liabilities instead of total liabilities. Non-current liabilities include long-term notes payable and other non-current liabilities, which add up to $3 million ($2 million + $1 million). So, the ratio would be:
Debt-to-assets ratio = Non-current liabilities / Total assets
Debt-to-assets ratio = $3 million / $10 million
Debt-to-assets ratio = 0.3
Therefore, the correct choice is C with the above-stated explanation.

A Company Has Assets of $10 Million and Liabilities of $7