The following data were taken from Mesa Company’s balance sheet:

The following data were taken from Mesa Company’s balance sheet:


Dec. 31, 2014 Dec. 31, 2013
Total liabilities $547,800 $518,000
Total owner’s equity 415,000 370,000


a. Compute the ratio of liabilities to owner’s equity.

b. Has the creditor’s risk increased or decreased from December 31, 2013, to December 31, 2014?


Answer:

a. Dec. 31, Dec. 31,
2014 2013
Total liabilities……………………………………………………… $547,800 $518,000
Total owner’s equity……………………………………………… $415,000 $370,000
Ratio of liabilities to owner’s equity…………………………… 1.32 * 1.40 **
* $547,800 ÷ $415,000
** $518,000 ÷ $370,000
b. Decreased