Question

The following information was taken from Combine Company's balance sheet:

Line Item Description Amount
Fixed assets (net) $770,000
Long-term liabilities 275,000
Total liabilities 1,058,750
Total stockholders' equity 962,500
Determine the company's (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders' equity. If required, round your answers to one decimal place.

Line Item Description Ratio
a. Ratio of fixed assets to long-term liabilities fill in the blank 1
b. Ratio of liabilities to stockholders' equity fill in the blank 2

Answer 1

To calculate the requested ratios, we can use the following formulas:

(a) Ratio of fixed assets to long-term liabilities:
\[
\text{Ratio of fixed assets to long-term liabilities} = \frac{\text{Fixed assets}}{\text{Long-term liabilities}}
\]

Substituting the values:
\[
\text{Ratio} = \frac{770,000}{275,000} \approx 2.8
\]

(b) Ratio of liabilities to stockholders' equity:
\[
\text{Ratio of liabilities to stockholders' equity} = \frac{\text{Total liabilities}}{\text{Total stockholders' equity}}
\]

Substituting the values:
\[
\text{Ratio} = \frac{1,058,750}{962,500} \approx 1.1
\]

Now we can summarize the results:

| Line Item Description | Ratio |
|------------------------------------------------------------------|----------|
| a. Ratio of fixed assets to long-term liabilities | 2.8 |
| b. Ratio of liabilities to stockholders' equity | 1.1 |

Thus, the final filled values are:
- Fill in the blank 1: 2.8
- Fill in the blank 2: 1.1