Justin Company Has Total Assets, Liabilities, and Shareholders' Equity of $36,000

question 10

Essay

Justin Company has total assets, liabilities, and shareholders' equity of $36,000, $15,000, and $21,000, respectively, at the beginning of 2010. At the end of 2010, total assets, liabilities, and shareholders' equity were reported at $32,000, $13,000, and $19,000, respectively. How much additional debt can Justin Company incur and still have its debt/equity ratio remain less than or equal to 1.00?
a. $6,000
b. $25,000
c. $12,000
d. $24,000

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Definitions:

Net Working Capital

Net working capital, a key indicator of short-term financial strength, is determined by subtracting a firm's current liabilities from its current assets, impacting its ability to meet short-term obligations.

Earnings Before Interest And Taxes

An indicator of a firm's earnings, specifically excluding the costs associated with interest and income taxes.

Depreciation

The accounting process of allocating the cost of tangible assets over their useful lives, reflecting the decrease in value of the asset over time.

Tax Rate

The fiscal share individuals or corporations surrender as tax.