Answer: The answer is as follows:
Explanation:
Given that,
Year 1:
Total liabilities = $120,000
Total owner’s equity = 80,000
Year 2:
Total liabilities = $128,250
Total owner’s equity = 95,000
Therefore,
Ratio of liabilities to owner’s equity for year 1 = [tex]\frac{Total\ liabilities}{Total\ owner\ equity}[/tex]
= [tex]\frac{120,000}{80,000 }[/tex]
= 1.5
Ratio of liabilities to owner’s equity for year 2 = [tex]\frac{Total\ liabilities}{Total\ owner\ equity}[/tex]
= [tex]\frac{128,250}{95,000 }[/tex]
= 1.35
