Judgment Case 1610

Macy's debt to equity ratio for the year ended February 1, 2014, was 2.46, calculated as ($21,634 - 6,249) 6,249. Some analysts argue that long-term deferred tax liabilities should be excluded from liabilities when computing the debt to equity ratio.

Required:

1.What is the rationale for the argument that long-term deferred tax liabilities should be excluded from liabilities when computing the debt to equity ratio?

2.What would be the effect on Macy's debt to equity ratio of excluding deferred tax liabilities from its calculation? What would be the percentage change?

3.What might be the rationale for not excluding long-term deferred tax liabilities from liabilities when computing the debt to equity ratio?