Question

Compute the missing amount in the accounting equation for each company​ (amounts in​ billions): Assets Liabilities Stockholders' Equity Love Drycleaners $ ? $43 $38 Ernie's Bank 25 ? 20 Weekly Stop Grocery 38 9 ? Requirement 1. Which company appears to have the strongest financial​ position? Explain your reasoning. Calculate the missing amounts. ​(Enter amounts in​ billions.) Assets Liabilities Stockholders' equity Love Drycleaners 81 $43 $38 Ernie's Bank 25 45 20 Weekly Stop Grocery 38 9

Answer 1

Answer:

Love Drycleaner's Assets: 81

Ernie's Bank Liability: 5

Weekly Stop Grocery Equity: 31

Ernie's Bank has the strongest financial position as it has de better debt to equity ratio

Explanation:

Accounting equation:

Assets = Liability + Equity

Love Drycleaners:

Assets ??? = Liab 43 + Equity 38

Assets = 43 + 38  = 81

Ernie's Bank:

Assets 25 = Liab ?? + Equity 20

Liab= 25 - 20 = 5

Weekly Stop Grocery:

A 38 = L 9 + E ??

equity = 38 - 9  = 31

THe strongest financial position will be for Ernie's Bank

As the debt to equity ratio is the lowest:

Love Drycleaners:   43/38 = 1.13 there is 1 dollar of debt per every dollar of quity an increase in the interst rate may cause troubles to this company.

Ernie's Bank: 5/20 = 0.25 There is 0.25 of debt per every dollar of equity This company is finance almost through equity so it could useleverage if needed to keep operations

Weekly Stop Grocery:   9/31 = 0.29 This company is also in good position as Ernie's but the question is for the strongest and that one is Ernie's Bank