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Question 1.8: Ratio of Liabilities to Owner’s Equity The following data we......

Ratio of Liabilities to Owner’s Equity

The following data were taken from Hawthorne Company’s balance sheet:

a. Compute the ratio of liabilities to owner’s equity.

b. Has the creditors’ risk increased or decreased from December 31, 2011, to December 31, 2012?

Dec. 31,2012  Dec. 31,2011
Total liabilities $120,000 $105,000
Total owner’s equity 80,000  75,000
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b. Increased

a.

Dec.

31,2012 

 Dec.

31,2011
Total liabilities $120,000 $105,000
Total owner’s equity 80,000  75,000
Ratio of liabilities to owner’s equity  1.50 1.4
($120,000/$80,000) ($105,000/$75,000)

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