D is corrent. The requirement is to calculate the debt-to-equity ratio. The debt-to-equity ratio is equal to total liabilities divided by total owners’ equity. Total owners’ equity is common stock plus retained earnings, or $365,000 ($150,000 + $215,000). Since assets equal liabilities plus owners’ equity, liabilities are equal to $395,000 ($760,000 – $365,000). The debt-to-equity ratio is equal to 1.08 ($395,000/$365,000).
A is incorrect. The debt-to-equity ratio is equal to total liabilities divided by total owners’ equity. Total owners’ equity is common stock plus retained earnings, or $365,000 ($150,000 + $215,000). Since assets equal liabilities plus owners’ equity, liabilities are equal to $395,000 ($760,000 – $365,000). The debt-to-equity ratio is equal to 1.08 ($395,000/$365,000).
B is incorrect. The debt-to-equity ratio is equal to total liabilities divided by total owners’ equity. Total owners’ equity is common stock plus retained earnings, or $365,000 ($150,000 + $215,000). Since assets equal liabilities plus owners’ equity, liabilities are equal to $395,000 ($760,000 – $365,000). The debt-to-equity ratio is equal to 1.08 ($395,000/$365,000).
A is incorrect. The debt-to-equity ratio is equal to total liabilities divided by total owners’ equity. Total owners’ equity is common stock plus retained earnings, or $365,000 ($150,000 + $215,000). Since assets equal liabilities plus owners’ equity, liabilities are equal to $395,000 ($760,000 – $365,000). The debt-to-equity ratio is equal to 1.08 ($395,000/$365,000).
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