Question

In: Accounting

(a)compute the ratio of liabilities to owner's equity (b) Has the creditor's risk increased or decreased from december 31,2018 to december 31,2019

The following data were taken from mesa company's balance sheet

Particulars	Dec 31,2019	Dec 31,2019
Total liabilities	5,47,800	5,18,000
Total owner's equity	4,15,000	3,70,000

(a) Compute the ratio of liabilities to owner's equity

(b) Has the creditor's risk increased or decreased from december 31,2018 to december 31,2019

Expert Solution

Ratio of liabilities to owner's equity : This ratio compares the claims of creditors to the claims of owners when financing assets. A lower ratio shows that the company has a strong ability to meet its creditors' commitments.

Calculation of ratio of liabilities to owner's equity for the year Dec 31,2019

Ratio of liabilities to owner's equity = Total liabilities / Total owner's equity

= $5,47,000 / $4,15,000

= $1.32

Calculation of ratio of liabilities to owner's equity for the year Dec 31,2018

Ratio of liabilities to owner's equity = Total liabilities / Total owner's equity
=$5,18,000 / $3,70,000

=$1.4

(b)Yes,creditors risk has decreased from 1.4 in 2018 to 1.32 in 2019

(a)ratio of liabilities to owner's equity for the year Dec 31,2019 is $1.32

(b)ratio of liabilities owner's equity for the year Dec 31,2018 is $1.4

(c))Yes,creditors risk has decreased from 1.4 in 2018 to 1.32 in 2019

balaji rao answered 2 years ago

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