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This is total liabilities divided by common stock + retained earnings. The reserve for bond retirement is an appropriation of retained earnings and is an equity account, as well.
The debt/equity ratio is total liabilities divided by total equity. When calculating a ratio that consists of all balance sheet amounts, such as the debt/equity ratio, we do not use averages. We use the most current period end figures that are available. Here, that is the December 31 balances. The reserve for bond retirement account is an appropriation of retained earnings. All retained earnings start out classified as Unappropriated Retained Earnings. The term "unappropriated" simply means that the retained earnings are available to be distributed to shareholders in the form of dividends. Occasionally, however, a company does not want to distribute a portion of its retained earnings, and this can be communicated to the shareholders (and potential shareholders) through the process of appropriating a portion of retained earnings. The appropriation of retained earnings is done by the board of directors, and there is only one result of this action. This action informs the readers of the financial statements that some of the retained earnings are not available for distribution. There is no legal meaning to this, no time period involved (the board can un appropriate the retained earnings at any time), and there are no involved accounting processes to this. There are many reasons that a company may decide to appropriate retained earnings. Among them are: creating a reserve to build a plant, meeting the requirements of a bond, or simply providing for the future. Remember, however, that the only effect of appropriating retained earnings is to let shareholders know that the appropriated retained earnings will not be distributed as a dividend. So the reserve for bond retirement is a line item in the equity section of the balance sheet and it is treated just like retained earnings in the calculation of the debt/equity ratio. As of December 31, Total Liabilities is $172,000 ($84,000 + $11,000 + $77,000) and Total Equity is $534,000 ($300,000 + $28,000 + $206,000). The debt/equity ratio is therefore $172,000 / $534,000, which equals 32.2%.
This is December 31 long-term debt ($77,000) divided by common stock ($300,000). The debt/equity ratio is total liabilities divided by total equity.
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Mica's debt/equity ratio is
