If Topeka Enterprises has a debt ratio of 40 percent,it means that for every $1 in ________,the firm has 40 cents in ________.
A)owners' equity;liabilities
B)assets;liabilities
C)owners' equity;assets
D)assets;owners' equity

Question

Quizplus · Accepted Answer

A debt ratio of 40% means that for every $1 in assets, the firm has 40 cents in liabilities. Owners' equity is not mentioned in the definition of debt ratio, so A and C can be eliminated. D is also incorrect as it implies that the firm has 60 cents in owners' equity, but the definition of debt ratio only looks at liabilities.

If Topeka Enterprises Has a Debt Ratio of 40 Percent,it