Question

Dexter's Bully Solutions Corporation

Income Statement

for the year ending 12/31/16

(in thousands of dollars)

Net sales	$ 2,700
Operating Costs	(2,350)
Depreciation	( 150)
Interest Expense	( 70)
EBT	130
Income Tax (40%)	( 52)
Net Income	$ 78

Dividends to Common Stock = $ 58

Dexter's Bully Solutions Corporation

Balance Sheet

12/31/16

(in thousands of dollars)

Cash	$ 150		Accounts Payable	$100
Accounts Receivable	250		Notes Payable	250
Inventory	600		Other Curt Liabilities	50
Total Current Assets	$1,000		Total Current Liabilities	$400

Total Fixed Assets

1,500

Long Term Debt

1,100

	Common Stock	800
	Retained Earnings	200

Total Assets

$2,500

Total Liab. & Equity

$2,500

Number of shares outstanding = 10,000 shares
Price per Share = $100

Use the information provided in Dexter's financial statements to perform the calculations necessary to complete the following statement: Dexter's has ___________ times more debt than equity.

A. 0.40
B. 0.667
C. 1.1
D. 1.5

Answer 1

Dexter's Total Debt in Financial Statement = Total Current Liabilities + Long Term Debt

= $400 + $1100

= $1500

Dexter's Total equity in Financial Statement = Common Stock + Retained Earnings

= $800 + $200

= $1000

So, Debt/Equity = $1500/$1000

= 1.5 times

So, Dexter's has 1.5 times more debt than equity

Hence, Option D

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