Q36PGA_2 - Horngren'S Financial And Managerial Accounting

Question

Reporting liabilities on the balance sheet and computing debt to equity ratio. The accounting records of Pack Leader Wireless include the following as of December 31, 2018:

Accounts Payable \( 77,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000

Interest Payable 18,000 Premium on Bonds Payable 10,000

Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700

Total Stockholders’ Equity 140,000

Requirements

1. Report these liabilities on the Pack Leader Wireless balance sheet, including headings and totals for current liabilities and long-term liabilities.

2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.

Step-by-Step Solution

Answer

The debt-to-equity ratio of the company is 1.45

Step 1: Definition of the salaries payable

The salaries payable are those salaries that are due and not paid by the company till the end of accounting year.

Step 2: Calculation of debt-to-equity ratio

$\begin{array}{c}\mathrm{Debt}-\mathrm{to}-\mathrm{equity}\mathrm{ratio}=\frac{\mathrm{Total}\mathrm{Liabilties}}{\mathrm{Total}\mathrm{equity}}\\ =\frac{\mathrm{\$}203,000}{\mathrm{\$}140,000}\\ =1.45\end{array}$