Chestnut,Inc.reported the following balances on its balance sheet at December 31,Year 1:

On January 1,Year 2,Chestnut purchased equipment for $40,000 on account.What is the company's debt-to-assets ratio immediately after the purchase of the equipment?

Question

Chestnut,Inc.reported the following balances on its balance sheet at December 31,Year 1:
 
On January 1,Year 2,Chestnut purchased equipment for $40,000 on account.What is the company's debt-to-assets ratio immediately after the purchase of the equipment?

Quizplus · Accepted Answer

This transaction increases equipment, an asset, and accounts payable, a liability.
Debt-to-assets ratio = Total debt ÷ Total assets
Debt-to-assets ratio = ($170,000 + $40,000) ÷ ($460,000 + $40,000) = 0.42