41.The debt-to-equity ratio is calculated by dividing total stockholders' equity by total liabilities.
42.The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.
43.A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.
If total assets and total liabilities are $350,000 and $200,000, respectively, stockholders' equity must be $150,000. Thus, the debt-to-equity ratio is $200,000/$150,000 or 1.3.
44.A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.
45.The contract rate on previously issued bonds changes as the market rate of interest changes.
46.The market rate for bonds is generally higher when the time period to maturity is longer due to the risk of adverse events occurring over the time period.
47.A 10-year bond issue with a $100,000 par value, 8% annual contract rate, with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.
48.When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.
49.When the contract rate is above the market rate, a bond sells at a discount.
50.A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.