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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 8BE
Textbook Problem
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Ratio of liabilities to stockholders’ equity

The following data were taken from Alvarado Company’s balance sheet:

Chapter 1, Problem 8BE, Ratio of liabilities to stockholders equity The following data were taken from Alvarado Companys

a. Compute the ratio of liabilities to stockholders’ equity for each year.

b. Has the creditor’s risk increased or decreased from December 31, 20Y3, to December 31, 20Y4?

a.

To determine

Compute the ratio of liabilities to stockholder's equity for the given years.

Explanation of Solution

Ratio of liabilities to stockholder's equity: This ratio measures the claims of creditors over claims of stockholders in financing the assets of a company. A lower ratio indicates that the company is able to pay off the creditors’ obligations efficiently. Formula of ratio of liabilities to stockholder's equity:

Ratio of liabilities to stockholder's equity = Total liabilitiesTotal  stockholder's equity  

Calculation of ratio of liabilities to stockholder's equity for Company A as on December 31, 20Y4.

Ratio of liabilities tostockholder's equity} = Total liabilitiesTotal  st

b.

To determine

Compare the changes in the creditor’s risk from December 31, 20Y3 to December 31, 20Y4.

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Financial And Managerial Accounting
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