Q6. Selected information from Ingot Company’s financial statements for the year ended December 31, 2004, was as follows prior to the consideration of its impaired asset write-down (in $):

Ingot Company’s excavation machine is permanently impaired. Its purchase price was $1,600,000 and its accumulated depreciation was $800,000 through 2004. The present value of its future cash flows is $500,000.

The write-down of the excavation machine will cause Ingot’s total debt ratio (total debt-to-total capital) to:

A)   decrease from 0.44 to 0.40.

B)   increase from 0.44 to 0.51.

C)   increase from 0.44 to 0.48.

答案和详解如下：

Q6. Selected information from Ingot Company’s financial statements for the year ended December 31, 2004, was as follows prior to the consideration of its impaired asset write-down (in $):

Ingot Company’s excavation machine is permanently impaired. Its purchase price was $1,600,000 and its accumulated depreciation was $800,000 through 2004. The present value of its future cash flows is $500,000.

The write-down of the excavation machine will cause Ingot’s total debt ratio (total debt-to-total capital) to:

A)   decrease from 0.44 to 0.40.

B)   increase from 0.44 to 0.51.

C)   increase from 0.44 to 0.48.

Correct answer is B)

The write-down of the excavation machine in the amount of ((($1,600,000 − $800,000) − $500,000) =) $300,000 decreases retained earnings from $490,000 to $190,000. The total debt to equity ratio increases from (($290,000 + $740,000) / ($290,000 + $740,000 + $800,000 + $490,000) =) 0.44 to (($290,000 + $740,000) / ($290,000 + $740,000 + $800,000 + $190,000) =) 0.51.

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