Q21BP-c The Ellis Corporation has heavy ... [FREE SOLUTION]

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 5: Q21BP-c (page 531)

The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows:
In $ millions
In $ millions
Current assets
$70
Current liabilities
$30
Fixed assets
$70
Long-term liabilities
$30
Total liabilities
$60
Stockholder鈥檚 equity
$80
Total assets
$140
Total stockholder鈥檚 equity and liabilities
$140
The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.
c. Compute total debt to total assets on the original and revised balance sheets.

Expert verified

The total debt to total assets ratio before revision is 42.85% and after revision is 64.6%.

The total debt to total assets ratio is 42.85%.

$Debt to asset ratio = \frac{Total debt}{Total assets} = \frac{$ 60}{$ 140} = 42.85 %$

The total debt to total assets ratio is 64.6%

$Debt to asset ratio = \frac{Total debt}{Total assets} = \frac{$ 146.024}{$ 226.024} = 64.6 %$

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In \( millions		In \) millions
Current assets	\(70	Current liabilities	\)30
Fixed assets	\(70	Long-term liabilities	\)30
		Total liabilities	\(60
		Stockholder鈥檚 equity	\)80
Total assets	\(140	Total stockholder鈥檚 equity and liabilities	\)140