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Chapter 5: Q21BP-d (page 531)

The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows:

In \( millions
In \) millions

Current assets

\(70

Current liabilities

\)30

Fixed assets

\(70

Long-term liabilities

\)30

Total liabilities

\(60

Stockholder’s equity

\)80

Total assets

\(140

Total stockholder’s equity and liabilities

\)140

The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.

d. Compute total debt to equity on the original and revised balance sheets.

Short Answer

Expert verified

The total debt to equity ratio before revision is 75% and after revision is 182.5%.

Step by step solution

01

Calculation of total debt to equity ratio before revision

The total debt to equity ratio is 75%.

Debt to equity ratio=Total debtTotal equity=$60$80=75%

02

Calculation of total debt to equity ratio after revision

The total debt to equity ratio is 182.5%.

Debt to equity ratio=Total debtTotal equity=$146.024$80=182.5%

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Most popular questions from this chapter

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