Answer (B) is correct . Because total assets will be the same as the sum of liabilities and equity, an increase in the liabilities to equity ratio will simultaneously increase the liabilities to assets ratio.
Answer (A) is incorrect because No determination can be made of the effect on interest coverage without knowing the amounts of income and interest expense.
Answer (C) is incorrect because The return on equity may be increased or decreased as a result of an increase in the liabilities to equity ratio.
Answer (D) is incorrect because The current ratio equals current assets divided by current liabilities, and additional information is necessary to determine whether it would be affected. For example, an increase in current liabilities from short-term borrowing would increase the liabilities to equity ratio but decrease the current ratio.
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