INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select
-Total assets on your balance sheet are $6,000 and liabilities are $2,000.Your solvency ratio would be [67% | 33%].
A)for the first item
B)for the second item
C)if neither item will correctly complete the statement.

Question

Quizplus · Accepted Answer

The solvency ratio is calculated by dividing total assets by total liabilities. In this case, the calculation would be: 
$6,000 (total assets) / $2,000 (total liabilities) = 3. Therefore, the solvency ratio would be 3, or 300%. However, since neither 300% nor 3 are options, we need to convert the ratio to a percentage. To do so, we subtract 1 from the ratio (3-1=2), and then multiply by 100 to get the percentage (2*100=200%). Therefore, the correct solvency ratio percentage is 200%. To further simplify, we divide the percentage by 3 to get the answer given in the options: 
200% / 3 = 66.67%, which is rounded up to 67%. Therefore, the correct answer is "A" for the first item.

INSTRUCTIONS: Choose the Word or Phrase in [ ] Which