Final answer:
The debt ratio for Little Sam Services, Inc. is calculated as total liabilities divided by total assets. Given the figures, the debt ratio is 20%, meaning 20% of the company's assets are financed by debt.
Step-by-step explanation:
The student asked, 'What is the debt ratio for Little Sam Services, Inc.?', given it has $8,500 cash, $3,500 Office Supplies, $13,000 Land, $5,000 Accounts Payable and $20,000 Common Stock. To calculate the debt ratio, we first determine the company's total liabilities and total assets.
Total assets equal cash + office supplies + land = $8,500 + $3,500 + $13,000 = $25,000. The only liability given is accounts payable, which is $5,000. The debt ratio is calculated by dividing total liabilities by total assets, which in this case is $5,000 / $25,000 = 0.20 or 20%.
Hence, the debt ratio for Little Sam Services, Inc. is 20%, indicating that 20% of the company's assets are financed through debt.