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19 June, 17:05

Compute the missing amount in the accounting equation for each company (amounts in billions) : Assets Liabilities Stockholders' Equity Love Drycleaners $? $43 $38 Ernie's Bank 25? 20 Weekly Stop Grocery 38 9? Requirement 1. Which company appears to have the strongest financial position? Explain your reasoning. Calculate the missing amounts. (Enter amounts in billions.) Assets Liabilities Stockholders' equity Love Drycleaners 81 $43 $38 Ernie's Bank 25 45 20 Weekly Stop Grocery 38 9

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  1. 19 June, 18:39
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    Love Drycleaner's Assets: 81

    Ernie's Bank Liability: 5

    Weekly Stop Grocery Equity: 31

    Ernie's Bank has the strongest financial position as it has de better debt to equity ratio

    Explanation:

    Accounting equation:

    Assets = Liability + Equity

    Love Drycleaners:

    Assets? = Liab 43 + Equity 38

    Assets = 43 + 38 = 81

    Ernie's Bank:

    Assets 25 = Liab? + Equity 20

    Liab = 25 - 20 = 5

    Weekly Stop Grocery:

    A 38 = L 9 + E?

    equity = 38 - 9 = 31

    THe strongest financial position will be for Ernie's Bank

    As the debt to equity ratio is the lowest:

    Love Drycleaners: 43/38 = 1.13 there is 1 dollar of debt per every dollar of quity an increase in the interst rate may cause troubles to this company.

    Ernie's Bank: 5/20 = 0.25 There is 0.25 of debt per every dollar of equity This company is finance almost through equity so it could useleverage if needed to keep operations

    Weekly Stop Grocery: 9/31 = 0.29 This company is also in good position as Ernie's but the question is for the strongest and that one is Ernie's Bank
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