The Eustis balance sheet shows total liabilities of $714,000 and total equity of $510,000. What debt-to-equity ratio is shown?
Correct Answer
D) 1.40 to 1
Debt-to-equity compares total liabilities with total equity.
Why This Is the Correct Answer
Debt-to-equity compares total liabilities with total equity.
Why the Other Options Are Wrong
Option A: 0.71 to 1
0.71 to 1 is below the supported result for debt-to-equity ratio; it likely uses the wrong base, period, or account bucket.
Option B: 1.65 to 1
1.65 to 1 is above the supported result for debt-to-equity ratio; it likely adds an unsupported amount or compares the wrong financial base.
Option C: 1.20 to 1
1.20 to 1 is below the supported result for debt-to-equity ratio; it likely uses the wrong base, period, or account bucket.
Memory Technique
Compares and liabilities live in different drawers; Cpa Reviews tells which opens.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section Three, Financial Ratios, Balance Sheet Ratios; use the job ledger figures in the stem and recompute the same accounting measure.
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