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Compute the debt-to-equity ratio

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Question: 1. What obligation does an entrepreneur (owner) have to investors that purchase bonds to finance the business?

2. On January 1, 2011, the $1,000,000 par value bonds of Gruden Company with a carrying value of $1,000,000 are converted to 500,000 shares of $0.50 par value common stock. Record the entry for the conversion of the bonds.

3. Compute the debt-to-equity ratio for each of the following companies. Which company appears to have a riskier financing structure? Explain.

                                       Canal Company                Sears Company

Total liabilities . . . . . . . . $492,000                              $ 384,000

Total equity . . . . . . . . . . 656,000                              1,200,000

Reference no: EM131534675

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