Below are selected data from the financial statements of Moriarty Company.$\begin{array}{lrr}&2018&2017\
\text { Total liabilities } & \$ 1,205,000 & \$ 952,000 \
\text { Common stock }(\$ 30 \text { par) } & 250,000 & 225,000 \
\text { Paid-in capital in excess of par-Common stock } & 150,000 & 135,000 \
\text { Retained earnings } & 155,000 & 145,000
\end{array}$ The debt-to-equity ratio for 2018 is

A)increasing,which should be a major cause of concern for Moriarty Company.
B)increasing,which should be a good sign in investors' eyes.
C)decreasing,which should be a major cause of concern for Moriarty Company.
D)decreasing,which should be a good sign in investors' eyes.

Question

Below are selected data from the financial statements of Moriarty Company.$\begin{array}{lrr}&2018&2017\
\text { Total liabilities } & \$ 1,205,000 & \$ 952,000 \
\text { Common stock }(\$ 30 \text { par) } & 250,000 & 225,000 \
\text { Paid-in capital in excess of par-Common stock } & 150,000 & 135,000 \
\text { Retained earnings } & 155,000 & 145,000
\end{array}$ The debt-to-equity ratio for 2018 is

A)increasing,which should be a major cause of concern for Moriarty Company.
B)increasing,which should be a good sign in investors' eyes.
C)decreasing,which should be a major cause of concern for Moriarty Company.
D)decreasing,which should be a good sign in investors' eyes.

Quizplus · Accepted Answer

The debt-to-equity ratio for 2018 is increasing, as the total liabilities increased from $952,000 in 2017 to $1,205,000 in 2018, while the equity (common stock + paid-in capital + retained earnings) also increased but at a slower rate. An increasing debt-to-equity ratio indicates that the company is financing more of its growth with debt, which can be a cause of concern if it becomes too high, indicating higher financial risk.

Below Are Selected Data from the Financial Statements of Moriarty