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23. Using the following accounts and their balances, calculate the debt ratio for Carter Furniture Repair as of December 31. (Click the icon to view Carter Furniture Repair's accounts.) Debt Ratio % %3D Data Table %3D Cash 6.000 Advertising Expense 2$ 1,300 Unearned Revenue 9,300 Utilities Expense 600 Equipment 20,000 Rent Expense 4,900 Service Revenue 9,600 Accounts Payable 2,400 Carter, Capital 18,000 Carter, Withdrawals 6,500 Print Done

23. Using the following accounts and their balances, calculate the debt ratio for Carter Furniture Repair as of December 31. (Click the icon to view Carter Furniture Repair's accounts.) Debt Ratio % %3D Data Table %3D Cash 6.000 Advertising Expense 2$ 1,300 Unearned Revenue 9,300 Utilities Expense 600 Equipment 20,000 Rent Expense 4,900 Service Revenue 9,600 Accounts Payable 2,400 Carter, Capital 18,000 Carter, Withdrawals 6,500 Print Done

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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### Calculating Debt Ratio for Carter Furniture Repair To determine the financial health and leverage of Carter Furniture Repair as of December 31, follow these steps to calculate the debt ratio using the given account balances. #### Steps to Calculate Debt Ratio: 1. **Identify Total Liabilities:** - Accounts Payable: $2,400 - Unearned Revenue: $9.300 - Total Liabilities = Accounts Payable + Unearned Revenue - Total Liabilities = $2,400 + $9,300 = $11,700 2. **Identify Total Assets:** - Cash: $6,000 - Equipment: $20,000 - Total Assets = Cash + Equipment - Total Assets = $6,000 + $20,000 = $26,000 3. **Compute the Debt Ratio:** - Debt Ratio = Total Liabilities / Total Assets - Debt Ratio = $11,700 / $26,000 4. **Convert to Percentage:** - Debt Ratio (%) = (Total Liabilities / Total Assets) x 100 - Debt Ratio (%) = ($11,700 / $26,000) x 100 ≈ 45% Thus, the debt ratio for Carter Furniture Repair is approximately 45%. #### Detailed Breakdown of Accounts: **Assets:** - Cash: $6,000 - Equipment: $20,000 **Liabilities:** - Unearned Revenue: $9,300 - Accounts Payable: $2,400 **Equity:** - Carter, Capital: $18,000 - Carter, Withdrawals: $6,500 **Expenses:** - Advertising Expense: $1,300 - Utilities Expense: $600 - Rent Expense: $4,900 **Revenue:** - Service Revenue: $9,600 By understanding these financial terms and calculations, students can better comprehend how to evaluate a company's financial leverage and stability. **Note:** Keep in mind that a lower debt ratio generally indicates a more financially stable company, as it implies that the company has fewer liabilities compared to its assets.
Transcribed Image Text:### Calculating Debt Ratio for Carter Furniture Repair To determine the financial health and leverage of Carter Furniture Repair as of December 31, follow these steps to calculate the debt ratio using the given account balances. #### Steps to Calculate Debt Ratio: 1. **Identify Total Liabilities:** - Accounts Payable: $2,400 - Unearned Revenue: $9.300 - Total Liabilities = Accounts Payable + Unearned Revenue - Total Liabilities = $2,400 + $9,300 = $11,700 2. **Identify Total Assets:** - Cash: $6,000 - Equipment: $20,000 - Total Assets = Cash + Equipment - Total Assets = $6,000 + $20,000 = $26,000 3. **Compute the Debt Ratio:** - Debt Ratio = Total Liabilities / Total Assets - Debt Ratio = $11,700 / $26,000 4. **Convert to Percentage:** - Debt Ratio (%) = (Total Liabilities / Total Assets) x 100 - Debt Ratio (%) = ($11,700 / $26,000) x 100 ≈ 45% Thus, the debt ratio for Carter Furniture Repair is approximately 45%. #### Detailed Breakdown of Accounts: **Assets:** - Cash: $6,000 - Equipment: $20,000 **Liabilities:** - Unearned Revenue: $9,300 - Accounts Payable: $2,400 **Equity:** - Carter, Capital: $18,000 - Carter, Withdrawals: $6,500 **Expenses:** - Advertising Expense: $1,300 - Utilities Expense: $600 - Rent Expense: $4,900 **Revenue:** - Service Revenue: $9,600 By understanding these financial terms and calculations, students can better comprehend how to evaluate a company's financial leverage and stability. **Note:** Keep in mind that a lower debt ratio generally indicates a more financially stable company, as it implies that the company has fewer liabilities compared to its assets.
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