147) All of the following statements accurately describe the debt ratio except. A) It is of use to both internal and external users of accounting information. B) A relatively low ratio signifies lower risk. C) The ratio is computed by dividing total liabilities by total assets. D) Higher financial leverage means greater risk. E) The ratio is computed by dividing total equity by total liabilities. Answer: E Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom's: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 148) At the end of the current year, James Co. reported total liabilities of \$300,000 and total equity of \$100,000. The company's debt ratio was: A) 300%. B) 33%. C) 75%. D) 67%. E) \$400,000. Answer: C Explanation: Debt Ratio = Total Liabilities/Total Assets Debt Ratio = \$300,000/\$400,000*; Debt Ratio = 0.75 = 75% *Total Assets = Total Liabilities + Total Equity Total Assets = \$300,000 + \$100,000; Total Assets = \$400,000 Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom's: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis