At the end of the current year, the following information is available for both Pulaski Company and Scott Company. Pulaski Company Scott Company Total assets $ 860,000 $ 440,000 Total liabilities 360,000 240,000 Total equity 500,000 200,000 Required: 1. Compute the debt-to-equity ratio
At the end of the current year, the following information is available for both Pulaski Company and Scott Company. Pulaski Company Scott Company Total assets $ 860,000 $ 440,000 Total liabilities 360,000 240,000 Total equity 500,000 200,000 Required: 1. Compute the debt-to-equity ratio
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
At the end of the current year, the following information is available for both Pulaski Company and Scott Company.
| Pulaski Company | Scott Company | |||||
| Total assets | $ | 860,000 | $ | 440,000 | ||
| Total liabilities | 360,000 | 240,000 | ||||
| Total equity | 500,000 | 200,000 | ||||
Required:
1. Compute the debt-to-equity ratios for both companies.
2. Which company has the riskier financing structure?
Complete this question by entering your answers in the tabs below.
- Required 2
Compute the debt-to-equity ratios for both companies.
|
Expert Solution
Step 1
Debt equity ratio =long term debt /equity
Lower the ratio, better it is
Note : In the question, no bifurcation given for liabilities, hence considered all is debt. Hence assumed total liabilities =debt
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