Q21BP-d 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-d (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.
d. Compute total debt to equity on the original and revised balance sheets.

Expert verified

The total debt to equity ratio before revision is 75% and after revision is 182.5%.

The total debt to equity ratio is 75%.

$Debt to equity ratio = \frac{Total debt}{Total equity} = \frac{$ 60}{$ 80} = 75 %$

The total debt to equity ratio is 182.5%.

$Debt to equity ratio = \frac{Total debt}{Total equity} = \frac{$ 146.024}{$ 80} = 182.5 %$

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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

Liabilities and stockholder鈥檚 claims
Liabilities
Accounts payable	\(2,800,000
First lien, secured by machinery and equipment	\)900,000
Senior unsecured debt	\(2,200,000
Subordinated debenture	\)1,700,000
Total liabilities	\(7,600,000
Stockholder鈥檚 claims
Preferred stock	\)250,000
Common stock	\(650,000
Total stockholder鈥檚 claims	\)900,000
Total liabilities and stockholder鈥檚 claims	$8,500,000

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