Question

ratio of liabilities to owners equity
the following data were taken from nakajima companys balance sheet:
\t\t\tdec. 31, 20y6\tdec. 31, 20y5
total liabilities\t\t$598,000\t$569,900
total owners equity\t\t460,000\t410,000
a. compute the ratio of liabilities to owners equity. round your answers to two decimal places.
\t\t\tratio of liabilities to owners equity
dec. 31, 20y6\t\t\b
dec. 31, 20y5\t\t\b
b. has the creditor’s risk increased or decreased from december 31, 20y5, to december 31, 20y6?

Explanation:

Step1: Calculate 20Y6 ratio

$\text{Ratio (20Y6)} = \frac{\text{Total Liabilities (20Y6)}}{\text{Total Owner's Equity (20Y6)}} = \frac{598000}{460000} \approx 1.30$

Step2: Calculate 20Y5 ratio

$\text{Ratio (20Y5)} = \frac{\text{Total Liabilities (20Y5)}}{\text{Total Owner's Equity (20Y5)}} = \frac{569900}{410000} \approx 1.39$

Step3: Analyze creditor's risk

Compare the two ratios: 1.30 < 1.39. A lower ratio means lower creditor risk.

Answer:

a.
Dec. 31, 20Y6: 1.30
Dec. 31, 20Y5: 1.39
b. Decreased