alleryTotal liabilities are $1,275,000 and total stockholders' equity is $2,675,000. What is the ratio of liabilities to stockholders' equity (to two decimals)?
A0.48
B2.10
C0.32
D1.48
Answer & Solution
Correct answer: A. 0.48
1. Ratio = total liabilities / total stockholders' equity.
2. = $1,275,000 / $2,675,000.
3. = 0.48, meaning debt is about half of equity.
4. Trap: 2.10 (option B) inverts the ratio, putting equity over liabilities.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.4 "Ratio of Liabilities to Stockholders' Equity", p.300_
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