One basic difference between partnership and agency law is that: a. in a partnership, partners are not deemed to be agents of th
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Answer:
Answer is explained in the explanation section below.
Explanation:
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Solution:
1. The debt-to-equity ratio is the best way to assess financial risk. A higher debt-to-equity ratio indicates a higher level of financial risk. This ratio represents the willingness of the equity of the owners to fulfil their obligations.
Formula used:
Debt-to-equity ratio = Total liabilities divided by owner's equity
For Clobes:
Total liabilities = 100,000
Owners' equity = 200,000
Debt-to-equity ratio = 100000/200000 = 0.5
For Snyder:
Total liabilities = 300,000
Owners' equity = 200,000
Debt-to-equity ratio = 300000/200000 = 1.5
For Welz:
Total liabilities = 300,000
Owners' equity = 100,000
Debt-to-equity ratio = 300000/100000 = 3
Welz faces the greatest financial risk because it has the highest debt-to-equity ratio. It has a debt-to-equity ratio of three. Even though it depends on the industry, a company's debt-to-equity ratio should be between 1 and 1.5 if it is considered optimal. In this case, Welz's financial risk is considerably higher.
2. calculate Return on Equity(ROE)
Formula used:
ROE = Net income / Owner's equity
For Clobes:
Net income = 25,000
Owners' equity = 200,000
ROE = 25,000 / 200000 = 0.125
For Snyder:
Net income = 30,000
Owners' equity = 200,000
ROE = 30000 / 200000 = 0.15
For Welz:
Net income = 20,000
Owners' equity = 200,000
ROE = 20000 / 100000 = 0.2
Welz has the highest return of equity (ROE) of 0.2.
As a result, Welz is the most profitable company.
3. Return on assets:
Formula used
Return on Assets = Net income / Total assets
For Clobes:
Net income = 25,000
Total assets = 300,000
Return on Assets = 25,000 / 300000 = 0.08
For Snyder:
Net income = 30,000
Total assets = 500000
Return on Assets = 30000 / 500000 = 0.06
For Welz:
Net income = 20,000
Total assets = 400,000
Return on Assets = 20000 / 400000 = 0.05
Hence,
Clobes has the highest return on assets, which is 0.08.
Solution :
Preferred Common
Non cumulative and non Participative 12,600 67,400
Cumulative and non participative 37800 42200
Cumulative and participative 47876 32124
<u> Current Stock Out Standing </u>
Common stock at the rate 50 5100 shares 255000
Preferred stock 7% at the rate 100 1800 shares 180000
<u> Cumulative the annual dividend on the preferred stock </u>
Preferred stock dividend (180000 x 7%) 12600
Dividend Arrears to preferred stock (12600 x 2) 25200
<u> Non cumulative and non participative </u>
Preferred Common Total
Current year 12600 12600
Arrears 0 0
Common stock 67400 67400
Total dividend 12600 67400 80000
<u> Cumulative and non participative </u>
Preferred Common Total
Current year 12600 12600
Arrears 25200 25200
Common stock 42200 42200
Total dividend 37800 42200 80000
<u> Cumulative and participative</u>
Preferred Common Total
Current year 12600 12600
Arrears 25200 25200
Common stock (255000 x 7%) 17850 17850
Balance dividend pro data 10076 14274 24350
Total dividend 47876 32124 80000
Working notes :
Amount for the participation = 80000-(12600+25200+17850) = 24350
Rate of participation = = 5.5977%
Participating dividend:
Preferred stock = 18000 x 5.5977% = 10076
Common stock = 255000 x 5.5977% = 14274
Total participating dividend = 24350