A private company following ASPE guidelines maintaining debt to equity ratio of 1:1. How will and how much the following inventory transaction will affect their debt to equity ratio??
The company has 1,000 go-kart gloves in inventory with an original cost of $20 per glove. These gloves were written down to their net realizable value of $15,000 in June when a competitor released the TecTrek glove, which was widely marketed as a superior model. “It is too bad that we had to take a writedown,” the controller complained, “because three months after the release of the TecTrek, a significant design defect was revealed and the TecTrek gloves are no longer on the market. Our go- kart gloves now have a net realizable value of $27.” A review of XGK’s inventory reveals that 750 of the gloves are still in stock at year end.