Question

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years: Current Year Previous Year Accounts payable $924,000 $800,000 Current maturities of serial bonds payable 200,000 200,000 Serial bonds payable, 10% 1,000,000 1,200,000 Common stock, $10 par value 250,000 250,000 Paid-in capital in excess of par 1,250,000 1,250,000 Retained earnings 860,000 500,000 The income before income tax was $480,000 and $420,000 for the current and previous years, respectively. a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.

Answer 1

The ratio of liabilities to stockholders' equity at the end of each year can be calculated by dividing the total liabilities by the total stockholders' equity.

Step-by-step explanation:

The ratio of liabilities to stockholders' equity can be calculated by dividing the total liabilities by the total stockholders' equity. In the current year, the total liabilities are $924,000 + $200,000 + $1,000,000 = $2,124,000 and the stockholders' equity is $250,000 + $1,250,000 + $860,000 = $2,360,000. Therefore, the ratio of liabilities to stockholders' equity is 0.9 (rounded to one decimal place).

In the previous year, the total liabilities are $800,000 + $200,000 + $1,200,000 = $2,200,000 and the stockholders' equity is $250,000 + $1,250,000 + $500,000 = $2,000,000. Therefore, the ratio of liabilities to stockholders' equity is 1.1 (rounded to one decimal place).