Burdick Corporation has provided the following financial data from its balance sheet: Sales (all on account) in Year 2 amounted to $1,410,000 and the cost of goods sold was $860,000. The company's equity multiplier at the end of Year 2 is closest to:
A)0.70
B)1.43
C)2.34
D)0.43

Question

Burdick Corporation has provided the following financial data from its balance sheet:  Sales (all on account) in Year 2 amounted to $1,410,000 and the cost of goods sold was $860,000. The company's equity multiplier at the end of Year 2 is closest to:
A)0.70 
B)1.43 
C)2.34 
D)0.43

Quizplus · Accepted Answer

The equity multiplier is calculated as total assets divided by total equity.

Total assets can be calculated by adding the company's liabilities (in this case, we are assuming that all liabilities are in the form of accounts payable since we were not given a breakdown of specific liabilities) to its equity:
Total Assets = Liabilities + Equity
Total Assets = $600,000 + $620,000
Total Assets = $1,220,000

Therefore, the equity multiplier is:
Equity Multiplier = Total Assets/Total Equity
Equity Multiplier = $1,220,000/$620,000
Equity Multiplier = 1.97

Therefore, the closest answer is (B) 1.43.

Burdick Corporation Has Provided the Following Financial Data from Its