The following data were taken from Mesa Company’s balance sheet:
Dec. 31, 2019 | Dec. 31, 2018
Total liabilities $547,800 | $518,000
Total owner’s equity 415,000 | 370,000
a. Compute the ratio of liabilities to owner’s equity.
b. Has the creditor’s risk increased or decreased from December 31, 2018, to December 31, 2019?
Answer:
a.Dec. 31, Dec. 31,2019 2018 Total liabilities...................................... ............... $547,800 $518,000 Total owner’s equity................................................ $415,000 $370,000 Ratio of liabilities to owner’s equity........................... 1.32 1.40 * $547,800 ÷ $415,000 ** $518,000 ÷ $370,000 b. Decreased