[matt]

I had this question from the NINJA MCQ:

Space Tech Company (STC) specializes in designing and fabricating components used in lunar and planetary landing and exploration systems. At the end of last year, STC reported the following data in its financial statements:

Total Assets $16,000,000

Total Debt 10,000,000

Sales 22,000,000

Net income 2,000,000

The debt to equity ratio of STC was ________ to 1.

A. .60

B. .80

C. 1.25

D. 1.67

I answered C because I took debt / (assets – debt) + NI from current statements.

10,000,000 / (16,000,000 – 10,000,000) + 2,000,000 = 1.25

The correct answer was D, which means I shouldn’t have included the current year NI.

Why wouldn’t I include the current NI? Isn’t that now considered equity?

Thanks in advance to anyone and everyone who responds!

done

FAR: 89
BEC: 88
REG: 81
AUD: 76

CPAexcel, NINJA 10 point combo, & NINJA MCQ

"Pain is temporary, it may last for a minute, or an hour, or a day, or even a year...but eventually it will subside and something else will take its place. If I quit however, it will last forever."

[rzrbkfaith]

Remember the accounting equation! A=L+E

In this case they give you assets and liabilities, you just have to solve for equity. Ignore the rest of the information.

A-L=E so 16M-10M=6M

Debt/Equity = 10M/6M=1.67 That is all there is to it. Don't let the extra information throw you off!

AUD - 99
BEC - 97
REG - 91
FAR - 1/8/16

[jbisdamon]

Exactly right. These are the end of year numbers according to the problem. Therefore NI would have already been included in the equity anyway. But, you know your equity HAS to equal 6,000 because of what was mentioned above. Gotta love how the exam makes us try to make things harder than they are sometimes haha.

BEC - 76 7/22/14
AUD - 84 8/30/14
REG - 75 10/16/14
FAR - 87 11/24/14

[matt]

Thank you both for your feedback – much appreciated!

done

FAR: 89
BEC: 88
REG: 81
AUD: 76

CPAexcel, NINJA 10 point combo, & NINJA MCQ

"Pain is temporary, it may last for a minute, or an hour, or a day, or even a year...but eventually it will subside and something else will take its place. If I quit however, it will last forever."

[Author]

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