Markus Company’s common stock sold for $2.75 per share at the end of this year.

Question

Markus Company’s common stock sold for $2.75 per share at the end of this year. The company paid a common stock dividend of $0.55 per share this year. It also provided the following data excerpts from this year’s financial statements:     

     

15. What is the equity multiplier?

Ending
Balance Beginning
Balance Cash $ 35,000 $ 30,000 Accounts receivable $ 60,000 $ 50,000 Inventory $ 55,000 $ 60,000 Current assets $ 150,000 $ 140,000 Total assets $ 450,000 $ 460,000 Current liabilities $ 60,000 $ 40,000 Total liabilities $ 130,000 $ 120,000 Common stock, $1 par value $ 120,000 $ 120,000 Total stockholders’ equity $ 320,000 $ 340,000 Total liabilities and stockholders’ equity $ 450,000 $ 460,000

Explanation / Answer

Average Stockholders’ Equity = (Beginning Stockholders’ Equity + Ending Stockholders’ Equity) / 2
Average Stockholders’ Equity = ($320,000 + $340,000) / 2
Average Stockholders’ Equity = $330,000

Equity Multiplier = Ending Total Assets / Average Stockholders’ Equity
Equity Multiplier = $450,000 / $330,000
Equity Multiplier = 1.36

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