Question

carlin company has total assets of $1,000,000, liabilities of $400,000, and equity of $600,000. what is the debt ratio (rounded to a whole percent)?
○ 250%
○ 167%
○ 60%
○ 40%

Explanation:

Step1: Recall the debt ratio formula

The debt ratio is calculated as the ratio of total liabilities to total assets, expressed as a percentage. The formula is \( \text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}} \times 100\% \).

Step2: Identify the values of total liabilities and total assets

From the problem, total liabilities (\( L \)) = $400,000 and total assets (LXI1) = $1,000,000.

Step3: Substitute the values into the formula

Substitute \( L = 400000 \) and \( A = 1000000 \) into the formula:
\( \text{Debt Ratio} = \frac{400000}{1000000} \times 100\% \)

Step4: Calculate the ratio

First, calculate \( \frac{400000}{1000000} = 0.4 \). Then multiply by 100%: \( 0.4 \times 100\% = 40\% \).

Answer:

40% (corresponding to the option: 40%)