The following information comes from the financial statements of Karlla Peterson Company:
|
Total liabilities |
$100,000 |
|
Total stockholders equity |
80,000 |
In addition, Karlla Peterson has a large number of operating leases. The payments on these operating leases total $20,000 per year for the next 15 years. The present value of the economic obligation associated with these operating leases is $150,000. Of course, because these are operating leases, this economic obligation is off the balance sheet.
Compute the following ratio values:
1.Debt ratio. HINT: Remember the accounting equation.
2.Debt to equity ratio.
3.Debt to equity ratio assuming that Karlla Peterson s operating leases are accounted for as capital leases.
4.Debt ratio assuming that Karlla Peterson s operating leases are accounted for as capital leases.