Question

Doug's Boat Shop, Inc. reports operating income of $260,000 and interest expense of $31,200. The average common stockholders' equity during the year was $50,000. The beginning assets balance is $115,000 and ending assets balance is $180,000. What is the leverage ratio

Answer 1

2.95

Step-by-step explanation:

Given that;

Beginning assets = $115,000

Ending assets = $180,000

Operating income = $260,000

Interest expense = $31,200

Average common stockholder equity = $50,000

Average total assets ;

= (Beginning assets + Ending assets) ÷ 2

= ($115,000 + $180,000) ÷ 2

= $147,500

Therefore,

Leverage ratio = Average total assets ÷ Average common stockholder equity

Leverage ratio = $147,500 ÷ $50,000

Leverage ratio = 2.95