ABC Company has total assets of $360,000 and total liabilities of $200,000. The company collects an account receivable of $20,000. After this transaction, the company's debt ratio will be:

Question

Quizplus · Accepted Answer

Debt ratio is the ratio of total liabilities to total assets.

Initially, the debt ratio of ABC Company was:

$200,000 (total liabilities) / $360,000 (total assets) = 0.56

After collecting the account receivable of $20,000, the total assets and total liabilities of the company will increase by the same amount.

New total assets = $360,000 + $20,000 = $380,000

New total liabilities = $200,000 + $20,000 = $220,000

Therefore, the new debt ratio will be:

$220,000 (total liabilities) / $380,000 (total assets) = 0.58

So, the correct answer is A) 0.56, which was the initial debt ratio before collecting the account receivable.

ABC Company Has Total Assets of $360,000 and Total Liabilities