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Q21BP-c

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Foundations Of Financial Management
Found in: Page 531
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

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 $ millionsIn $ millions

Current assets

$70

Current liabilities

$30

Fixed assets

$70

Long-term liabilities

$30

Total liabilities

$60

Stockholder’s equity

$80

Total assets

$140

Total stockholder’s equity and liabilities

$140

The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.

c. Compute total debt to total assets on the original and revised balance sheets.

The total debt to total assets ratio before revision is 42.85% and after revision is 64.6%.

See the step by step solution

Step by Step Solution

Step 1: Calculation of total debt to total assets ratio before revision

The total debt to total assets ratio is 42.85%.

Step 2: Calculation of total debt to total assets ratio after revision

The total debt to total assets ratio is 64.6%

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