Answer:
a. The ratio of liabilities to stockholders' equity for the current year is 0.90:1
b. The ratio of liabilities to stockholders' equity for the previous year is 1.10:1
Explanation:
In order to calculate the ratio of liabilities to stockholders' equity at the end of each year we would have to use the following formula:
ratio of liabilities to stockholders' equity=Total Liabilities/Total Stockholder's Equity
Hence, we need to calculate first the total liabilities and total stockholders equity for the current and previous year as follows:
Liabilities current year=Accounts Payable+Serial Bonds Payable - Current+Serial Bonds Payable
Liabilities current year=$924,000.00+$200,000.00+$1,000,000.00
Liabilities current year= $2,124,000.00
total stockholders equity current year=Common Stock+Paid in Capital in excess of par+Retained Earnings
total stockholders equity current year=$250,000.00 + $1,250,000.00 + $860,000.00
total stockholders equity current year=$2,360,000.00
Therefore, ratio of liabilities to stockholders' equity for current year= $2,124,000.00/$2,360,000.00=0.90 : 1
Liabilities previous year=$800,000.00+$200,000.00+$1,200,000.00
Liabilities previous year= $2,200,000.00
total stockholders equity previous year=$250,000.00 + $1,250,000.00 + $500,000.00
total stockholders equity previous year=$2,000,000.00
Therefore, ratio of liabilities to stockholders' equity for previous year= $2,200,000.00/$2,000,000.00=1.10 : 1
