Identify the Correct Formula Below Used to Calculate the Debt

question 226

Multiple Choice

Identify the correct formula below used to calculate the debt ratio.

• A) Total Liabilities/Total Assets.
• B) Total Equity/Total Assets.
• C) Total Assets/Total Liabilities.
• D) Total Equity/Total Liabilities.
• E) Total Liabilities/Total Equity.

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Definitions:

Fair Values

The estimated market value of an asset or liability, reflecting the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Collateralized Loan

A loan that is secured by collateral, assets that the lender can seize if the borrower fails to repay the loan.

Prepaid Interest

The amount of interest that is paid in advance of the period to which it relates, often associated with loans or mortgages.

Loan Payable

Loan Payable is the liability account in a company’s balance sheet representing the amount owed to lenders that must be paid back in the future.