In its closing financial statements for its first year in business, the Runs and Goses Company, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of$3,408, accounts payable of $700, short-term notes payable of $740, long-term liabilities of $1,100, common stock of $1,160, retained earnings of$1,620, net sales of $2,768, cost of goods sold of $1,210, depreciation of $360, interest expense of $160, taxes of $312, addition to retained earnings of $508, and dividends paid of $218.
-What is the equity multiplier for Runs and Goses?
A)4.59 times
B)2.35 times
C)0.48 times
D)1.12 times
E)1.91 times

Question

Quizplus · Accepted Answer

The equity multiplier is calculated as Total Assets / Total Equity. Total Assets = Cash + Accounts Receivable + Inventory + Net Fixed Assets = $242 + $850 + $820 + $3,408 = $5,320. Total Equity = Common Stock + Retained Earnings = $1,160 + $1,620 = $2,780. Equity Multiplier = $5,320 / $2,780 = 1.91 times.

In Its Closing Financial Statements for Its First Year in Business