The following data were taken from Alvarado Company’s balance sheet:Compute the ratio of liabilities to owner’s equity.

The following data were taken from Alvarado Company’s balance sheet:

                      Dec. 31, 2019 | Dec. 31, 2018

Total liabilities        $4,085,000 | $2,880,000

Total owner’s equity.     4,300,000 | 3,600,000

a. Compute the ratio of liabilities to owner’s equity.

b. Has the creditor’s risk increased or decreased from December 31, 2018, to December 31, 2019?

Answer:

a.Dec. 31, Dec. 31, Total liabilities...................................................... $4,085,000 $2,880,000 Total owner’s equity................................................ $4,300,000 $3,600,000 Ratio of liabilities to owner’s equity........................... 0.95 0.80 * $4,085,000 ÷ $4,300,000 ** $2,880,000 ÷ $3,600,000 b. Increased