Income Statement Revenues Expenses Interest expense $345,000 (205,000) (4,900) P
ID: 2449437 • Letter: I
Question
Income Statement Revenues Expenses Interest expense $345,000 (205,000) (4,900) Pretax income Income tax (40%) 135,100 (54,040) Net income $ 81,060 Balance Sheet Assets $ 387,000 Common stock, par $10 Retained earnings Liabilities (average interest rate, 10%) $ 49,000 239,000 99,000 $ 387,000 Notice in these data that the company had a debt of only $49,000 compared with common stock outstanding of $239,000. A consultant recommended the following: debt, $99,000 (at 10 percent) and common stock outstanding of $189,000 (18,900 shares). That is, the company should finance the business with more debt and less owner contribution Required: 1. You have been asked to develop a comparison between (a) the actual results and (b) the results had the consultant's recommendation been followed. To do this, you develop the following schedule: (Round your percentage answers (return on total assets and return on stockholders equity) to 1 decimal place, 0.123 should be entered as 12.3). Round EPS answers to 2 decimal points.) Actual Results for 2014 Results with an Increase in Debt and Item Reduction in Equity a. Total debt b. Total assets C. Total stockholders' equity d. Interest expense e. Net income f. Return on total assets g. Earnings available to stockholders Amount Per share Return on stockholders' equityExplanation / Answer
The required comparison should be developed as follows:
The above figures have been computed in the following manner: