Chapter 1, Problem 1.27EX

a)

To determine

Ratio of liabilities to stockholder's equity:

Ratio of liabilities to stockholders' equity shows the relationship between the liabilities and the stockholder’s equity. This ratio measures the claims of creditors over the claims of owners in financing the assets. A lower ratio indicates that the company has good ability to pay off the creditors’ obligations.

$\begin{array}{l}\text{Ratio of liabilities to}\\ \text{stockholders' equity}\end{array}\}\text{=}\frac{\text{Total Liabilities}}{\text{Total Stockholder’s Equity}}$

To determine: Total stockholder’s equity at the end of the years 2 and 1 for Company LC.

b)

To determine

The ratio of liabilities to stockholders' equity of Company LC.

c)

To determine

To derive: A conclusion regarding the margin of protection to the creditors from the ratio of liabilities to stockholders' equity of Company LC.

d)

To determine

To Compare: The ratio of liabilities to stockholders' equity of Company LC and Company THD.