Question

"A corporation has annual sales of​ $18 million, total assets of​ $4 million, a debt ratio of​ 40%, depreciation expense of​ $200,000, and a tax rate of​ 40%. The​ corporation's total​ stockholders' equity is equal to"

Answer 1

$2.4 million

Step-by-step explanation:

The total assets of the firm are funded by both debt and equity,hence, the total assets is the same as total equity plus total debt based on the accounting equation formula below:

total assets=equity+debt

tota assets=$4 million

equity=unknown

debt can be derived using the debt ratio as shown thus:

debt ratio=debt/total assets

debt ratio=40%

debt=unknown

total assets=$4 million

40%=debt/$ 4 million

debt=40%*$4 million

debt=$1.6 million

$4 million=equity+$1.6 million

equity=$4 million-$1.6 million

equity =$2.4 million