At the beginning of the year, ABC Company had total assets of \$600,000, Total Liabilities of \$360,000, and Total Equity of \$240,000. At the end of the year, total assets had increased to \$800,000, Total Liabilities decreased to \$320,000 and Total Equity increased to \$480,000. What was the change in the company's debt ratio during the year?

• A. Increase by 0.20
• B. Increase by 0.83
• C. Decrease by 0.20
• D. Decrease by 0.83
• E. No change in the debt ratio

Answer: (C)

Verified step by step guidance

1. Understand the debt ratio formula: Debt Ratio = Total Liabilities / Total Assets.
2. Calculate the initial debt ratio at the beginning of the year using the given values: Initial Debt Ratio = \$360,000 / \$600,000.
3. Calculate the final debt ratio at the end of the year using the updated values: Final Debt Ratio = \$320,000 / \$800,000.
4. Determine the change in the debt ratio by subtracting the final debt ratio from the initial debt ratio.
5. Analyze the result to determine if the debt ratio increased, decreased, or remained the same, and by how much.