Question

Sally’s Dress Shop, Inc. reports operating income of $200,000 and interest expense of $18,000. The average common stockholders’ equity during the year was $20,000. The beginning assets balance is $80,000 and ending assets balance is $120,000. What is the leverage ratio? (Round y

Answer 1

Answer:

5

Explanation:

Given that,

Beginning assets = $80,000

Ending asset = $120,000

Operating income = $200,000

Interest expense = $18,000

Average common stockholders’ equity = $20,000

Average total assets:

= (Beginning assets + ending asset) ÷ 2

= ($80,000 + $120,000) ÷ 2

= $100,000

Leverage ratio:

= Average total assets ÷ Average common stockholders' equity

= $100,000  ÷ $20,000

= 5