Kim has a net worth of -$20 000 and a debt-to-asset ratio of three.Which of the following do you know is true?
A)Kim has a major liquidity problem.
B)Kim is on the verge of bankruptcy.
C)Kim has assets of $10 000.
D)Kim has liabilities of $20 000.

Question

Quizplus · Accepted Answer

Since Kim's debt-to-asset ratio is three, we know that her debts are three times her assets. Therefore, if her net worth (assets minus liabilities) is -$20 000, her assets must be $10 000 [(1/3)*$30 000 (total debt) = $10 000].

Kim Has a Net Worth of -$20 000 and a Debt-To-Asset