At the beginning of the current year, Taunton 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 owner withdrawals of $5,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $260,000. Taunton 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) Cannot be determined from the information provideD.If total assets were $248,000 and total liabilities were $175,000, total equity was $73,000 at the beginning of the period. Add to that figure $93,000 of revenues during the year and subtract $76,000 of expenses and $5,000 of withdrawals during the year and equity obviously ended the year at $85,000. If total assets at the end of the year were $260,000 and total equity was $85,000, total liabilities were $175,000. Thus, the debt ratio was $175,000/$260,000 = 67.3%.

Question

Quizplus · Accepted Answer

To calculate the debt ratio, we need to divide total liabilities by total assets at the end of the year.

Total liabilities = $175,000 
Total assets at the end of the year = $260,000

Debt ratio = Total liabilities / Total assets at the end of the year
Debt ratio = $175,000 / $260,000
Debt ratio = 0.673 or 67.3%

Therefore, the correct answer is B) 67.3%.

At the Beginning of the Current Year, Taunton Company's Total