Smith Company Has Total Assets, Liabilities, and Shareholders' Equity of $20,000

Essay

Smith Company has total assets, liabilities, and shareholders' equity of $20,000, $7,000, and $13,000, respectively, at the beginning of 2010. At the end of 2010, total assets, liabilities, and shareholders' equity were reported at $16,000, $5,000, and $11,000, respectively.
A. How much additional debt can Smith incur and still have its debt/equity ratio remain less than or equal to 1.00?
B. What information does the debt/equity ratio provide you?