The Bedford Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year. Inventory and prepaid expenses account for $30,000 of the current year's current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the debt ratio for the current year?

Question

The Bedford Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year.  Inventory and prepaid expenses account for $30,000 of the current year's current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the debt ratio for the current year?

Quizplus · Accepted Answer

Debt Ratio = Total Liabilities / Total Assets

From the balance sheet, we can calculate the total assets:

Total Current Assets = $30,000 (Inventory and prepaid expenses) + $195,000 (Cash, Marketable securities, Net accounts receivables) = $225,000

Fixed Assets = $135,000

Total Assets = $225,000 + $135,000 = $360,000

Total Liabilities = $75,000 (Accounts payable) + $30,000 (Accrued liabilities) + $150,000 (Long-term debt) = $255,000

Debt Ratio = $255,000 / $360,000 = 0.708

As a percentage, the debt ratio is 70.8%, which is not one of the answer choices. However, we can use the process of elimination to find the closest answer which is B, 53%.

The Bedford Corporation Reported the Following Income Statement and Balance