Answer (A) is correct . Boutwell’s current liabilities are $200,000 ($640,000 ÷ 3.2). Thus, its total debt load is $330,000 ($200,000 + $130,000) and its total equity is $660,000 ($990,000 – $330,000). Therefore, Boutwell’s debt to equity ratio is 0.50 to 1 ($330,000 ÷ $660,000).
Answer (B) is incorrect because Total debt would be $330,000 and equity would be $660,000.
Answer (C) is incorrect because A ratio of 0.33 results from improperly dividing total liabilities by total assets instead of total equity.
Answer (D) is incorrect because A ratio of 0.13 results from dividing only long-term liabilities, instead of total liabilities, by total assets, instead of net assets.
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The company’s debt to equity ratio is
