Q29E - Horngren'S Financial And Managerial Accounting

Question

Computing the debt to equity ratio

Ludwig Corporation has the following data as of December 31, 2018:

Total Current Liabilities \( 36,210 Total Stockholders’ Equity \) ?

Total Current Assets 58,200 Other Assets 36,800

Long-term Liabilities 139,630 Property, Plant, and Equipment, Net 206,440

Compute the debt to equity ratio at December 31, 2018.

Step-by-Step Solution

Answer

The debt-to-equity ratio of the company is 1.46

Step 1: Definition of debt-to-equity ratio

The debt-to-equity ratio is a financial ratio that shows the proportion of debt and the shareholder’s equity.

Step 2: Calculation of the debt-to-equity ratio

$\begin{array}{rcl}Debt to Equity& =& \frac{Total Debt}{Total Shareholder\text{'}s Equity}\\ & =& \frac{\$197,830}{\$134,600}\\ & =& 1.46\end{array}$ 

Working Notes:

Total Current Assets	$58,200
Other Assets	$36,800
Plant and Equipment	$206,440
Total Assets	$301,440
Less: Current Liabilities	($36,210)
Less: Long-term Liabilities	($139,630)
Total Shareholder’s Equity		$134,600