A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.
If total assets and total liabilities are $350,000 and $200,000, respectively, stockholders' equity must be $150,000. Thus, the debt-to-equity ratio is $200,000/$150,000 or 1.3.

Question

Quizplus · Accepted Answer

The given debt-to-equity ratio calculation is incorrect. The correct calculation should be total liabilities/stockholders' equity, which is $200,000/$150,000, resulting in a debt-to-equity ratio of 1.33 (rounded to two decimal places).

A Company Has Assets of $350,000 and Total Liabilities of $200,000