Orem Corporation's current liabilities are $75,000, its long-term liabilities are $225,000, and its working capital is $100,000. If the corporation's debt-to-equity ratio is 0.30, total long-term assets must equal:
A) $1,000,000
B) $1,300,000
C) $1,125,000
D) $1,225,000

Question

Quizplus · Accepted Answer

The debt-to-equity ratio is calculated as total liabilities divided by total equity. If the debt-to-equity ratio is 0.30, then total liabilities are 30% of total equity. In this case, total liabilities are $75,000 + $225,000 = $300,000. Therefore, total equity must be $300,000 / 0.30 = $1,000,000. Total assets are equal to total liabilities plus total equity, so total long-term assets must be $300,000 + $1,000,000 - $100,000 = $1,200,000.

Orem Corporation's Current Liabilities Are $75,000, Its Long-Term Liabilities Are