Question

Below are selected data from the financial statements of Pepper Company for 2016 and 2017.

	2017	2016
Total liabilities	$240,000	$190,000
Common stock ($30 par)	31,000	31,800
Paid-in capital in excess of par—common stock	55,500	58,250
Retained earnings	93,000	107,000

The debt-to-equity ratio for 2017 is

Select one:

A. $1.337 to $1, which should be a cause of concern for Pepper Company managers.

B. $1.337 to $1, which should be a cause of concern for stockholders.

C. increasing, which should be a negative sign for credit analysts.

D. All of the above

Answer 1

Correct answer is D. All of the above .

explanation -

Debt- equity ratio = Total liabilities/Equity

		2017	2016
a	Total liabilities	$240,000	$190,000
	Common stock ($30 par)	31,000	31,800
	Paid-in capital in excess of par—common stock	55,500	58,250
	Retained earnings	93,000	107,000
b	total equity	$179,500	$197,050
c=a/b	Debt-equity	$1.337	$0.964