A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The shareholders' equity is $900,000. What is the total debt to asset ratio?

Question

Quizplus · Accepted Answer

Total Debt = Long-term Debt = $900,000 
Total Assets = $2,000,000 
Debt to Asset Ratio = Total Debt / Total Assets x 100%
Debt to Asset Ratio = 900,000 / 2,000,000 x 100%
Debt to Asset Ratio = 45%
Therefore, the correct answer is C) 55% is incorrect as the total debt, i.e. $900,000, cannot exceed the total assets, i.e. $2,000,000.

A Firm Has Total Assets of $2,000,000