Karzon Ltd., a car manufacturing company, calculated its debt ratio to be 2:5. Calculate the total debt for Karzon Ltd., from the following information: Cash in hand = $120,000
Cash at bank = $180,000
Bills receivable = $200,000
Bills payable = $180,000
Land and building = $250,000
Inventories = $50,000
Machinery = $100,000
A) $360,000
B) $240,000
C) $280,000
D) $300,000
E) $270,000

Question

Quizplus · Accepted Answer

The debt ratio is 2:5, meaning for every $5 of total assets, there is $2 of debt. First, calculate total assets: Cash in hand ($120,000) + Cash at bank ($180,000) + Bills receivable ($200,000) + Land and building ($250,000) + Inventories ($50,000) + Machinery ($100,000) = $900,000. Using the debt ratio, Total Debt = (2/5) * Total Assets = (2/5) * $900,000 = $360,000.