The following data were taken from Alvarado Company’s balance sheet:
dec. 31, 2016 | dec. 31, 2015
Total liabilities $4,085,000 | $2,880,000
Total stockholders’ equity. 4,300,000 | 3,600,000
a. Compute the ratio of liabilities to stockholders’ equity.
b. Has the creditor’s risk increased or decreased from December 31, 2015, to December 31, 2016?
Answer:
a. Dec. 31, Dec. 31,
2016 2015
Total liabilities……………………………………………… $4,085,000 $2,880,000
Total stockholders’ equity………………………………… $4,300,000 $3,600,000
Ratio of liabilities to stockholders’ equity…………… 0.95*
* $4,085,000 ÷ $4,300,000
** $2,880,000 ÷ $3,600,000
b. Increased
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