At the beginning of the current year, Trenton Company's total assets were $248,000 and its total liabilities were $175,000. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and owner withdrawals of $5,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $260,000. Trenton Company's debt ratio at the end of the current year is:
A) 1.42%.
B) 70.6%.
C) 48.6%.
D) 67.3%.
E) 32.7%.

Question

Quizplus · Accepted Answer

First, we can calculate owner's equity (or owner's capital) at the beginning of the year by subtracting total liabilities from total assets:

Owner's equity = Total assets - Total liabilities
Owner's equity = $248,000 - $175,000
Owner's equity = $73,000

We can also calculate owner's equity at the end of the year using the accounting equation:

Assets = Liabilities + Owner's equity

We know that total assets at the end of the year were $260,000, and we know that there were no other changes in owner's capital during the year, so:

$260,000 = Total liabilities + $73,000 + Owner withdrawals ($5,000)

Solving for total liabilities, we get:

Total liabilities = $182,000

Now we can use the debt ratio formula to calculate Trenton Company's debt ratio at the end of the current year:

Debt ratio = Total liabilities / Total assets
Debt ratio = $182,000 / $260,000
Debt ratio = 0.7 or 70.0%

Therefore, the correct answer is D) 67.3%.

At the Beginning of the Current Year, Trenton Company's Total