31) A journal entry for a $65 payment for rent expense was posted as a debit to Salaries Expense and a
credit to Cash. Which of the following statements correctly states the effect of the error on the trial
balance?
A) The sum of the credits will equal the sum of the debits.
B) The sum of the debits will exceed the sum of the credits by $65.
C) The sum of the debits will exceed the sum of the credits by $130.
D) The sum of the credits will exceed the sum of the debits by $130.
32) A journal entry for a $220 payment to purchase office supplies was erroneously recorded as a debit to
Office Supplies for $500 and a credit to Cash for $220. Which of the following statements correctly states
the effect of the error on the trial balance?
A) The sum of the credits will exceed the sum of the debits by $280.
B) The sum of the debits will exceed the sum of the credits by $220.
C) The sum of the debits will exceed the sum of the credits by $280.
D) The sum of the debits will exceed the sum of the credits by $500.
33) Balancing errors can be detected by computing the difference between total debits and total credits on
the trial balance. List three actions that can then be used to find the errors.
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2.5 Learning Objective 2-5
1) The debt ratio shows the proportion of assets financed with debt.
2) The debt ratio is one indication of the ability of a company to fulfill its obligation to repay liabilities.
3) Baytown Paper Company has a debt ratio of 25%, which means that 75% of the assets are financed by
creditors.
4) The higher the debt ratio, the lower the risk of default.
5) Which of the following is the correct formula to calculate the debt ratio?
A) Debt ratio = Total liabilities × Total assets
B) Debt ratio = Total liabilities + Total assets
C) Debt ratio = Total liabilities – Total assets
D) Debt ratio = Total liabilities / Total assets
6) The proportion of assets that are financed with debt can be calculated using the ________ ratio.
A) quick
B) debt
C) asset
D) cash
7) The ability of a company to pay its debts can be evaluated by using the ________.
A) earnings per share
B) return on assets ratio
C) debt ratio
D) fully diluted earnings per share
8) Converse Florists & Co. reported assets of $1,000 and equity of $450. What is its debt ratio? (Round
your percentage answer to two decimal places.)
A) 55.00%
B) 45.00%
C) 100.00%
D) 60.00%
9) Durable Plastics Company had the following total assets, liabilities, and equity as of December 31.
Total Assets
$430,000
Total Liabilities
131,000
Total Equity
299,000
What is the company’s debt ratio as of December 31? (Round your percentage answer to two decimal
places.)
A) 30.47%
B) 69.53%
C) 100.00%
D) 43.81%
10) Which of the following is assessed using the debt ratio?
A) profitability
B) revenues
C) risk of default
D) net income
11) Calculate the debt ratio using the following trial balance of Superior Instruments, Inc. as of December
31, 2019.
Superior Instruments, Inc.
Trial Balance
December 31, 2019
Account Title Debit Credit
Cash $88,800
Accounts Receivable 5,000
Office Supplies 3,400
Land 70,000
Building 16,500
Equipment 2,000
Accounts Payable $ 15,000
Notes Payable 60,000
Common Stock 50,000
Dividends 1,200
Service Revenue 72,000
Utilities Expense 4,100
Salaries Expense 4,000
Advertising Expense 2,000 _______
Total $197,000 $197,000
12) What are two ways in which a company can improve its debt ratio?