Question

In: Accounting

Determine the company’s (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to total stockholders’ equity. Round to one decimal place.

The following information was taken from Acme Company’s balance sheet:

Fixed assets (net) $1,400,000

Long-term liabilities 400,000

Total liabilities 560,000

Total stockholders’ equity 1,400,000

Determine the company’s (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to total stockholders’ equity. Round to one decimal place.

Solutions

Expert Solution

The following formulae can be used to calculate the company's ratios of fixed assets to long-term liabilities and liabilities to total shareholder equity.

(a) Ratio of Fixed Assets to Long-term Liabilities = Fixed Assets / Long-term Liabilities (b) Ratio of Liabilities to Total Stockholders' Equity = Total Liabilities / Total Stockholders' Equity

Given: Fixed assets (net): $1,400,000 Long-term liabilities: $400,000 Total liabilities: $560,000 Total stockholders' equity: $1,400,000

(a) Ratio of Fixed Assets to Long-term Liabilities: Ratio of Fixed Assets to Long-term Liabilities = Fixed Assets / Long-term Liabilities = $1,400,000 / $400,000 = 3.5

Therefore, the ratio of fixed assets to long-term liabilities is 3.5 (rounded to one decimal place).

(b) Ratio of Liabilities to Total Stockholders' Equity: Ratio of Liabilities to Total Stockholders' Equity = Total Liabilities / Total Stockholders' Equity = $560,000 / $1,400,000 = 0.4

Therefore, the ratio of liabilities to total stockholders' equity is 0.4 (rounded to one decimal place).

 

Therefore, the ratio of fixed assets to long-term liabilities is 3.5 (rounded to one decimal place).

Therefore, the ratio of liabilities to total stockholders' equity is 0.4 (rounded to one decimal place).

balaji rao answered 1 year ago
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