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Elden [556K]
3 years ago
12

Companies A and B each have the same level of total assets, the same tax rate, and the same earnings before interest and taxes (

EBIT). Company A, however, has a higher debt ratio. Which of the following statements is most correct?a.Company A has a lower return on assets (ROA).b.Company A has a lower basic earning power (BEP).c.Company A has a lower times interest earned (TIE) ratio.d.Answers a and c are correct.e.All of the answers above are correct
Business
1 answer:
anygoal [31]3 years ago
5 0

Answer:

a.Company A has a lower return on assets (ROA).

c.Company A has a lower times interest earned (TIE) ratio.

That is options a and c

Explanation:

For company A to have high debt ratio means it has a higher debt which will reduce earnings. Company A's earnings will be less than Company B's.

ROA= Net income/Total assets

Since Company A's income is less than Company B's ROA for Company A will be less than that for Company B.

TIE = Earnings before Interest and Tax/Interest

Due to higher debt of company A it's interest will be higher resulting in low TIE.

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Company's comparative balance sheet E(Click the icon to view the comparative balance sheet.) t January 31, 2019, and 2018, repor
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Answer:

Bosley Company

Calculation of Net Income or Net Loss during the year ended January 31, 2019, under three independent situations:

Situation 1. Bosley issued $5 million of stock and declared no dividends.  

Net Loss = stockholders' equity, January 31, 2018 plus new issue of stock less stockholders' equity, January 31, 2019

= $51 + 5 - 31 = $25 million

Situation 2. Bosley issued no stock but declared dividends of $8 million.

Net loss = stockholders' equity, January 31, 2018 less (dividends + stockholders' equity, January 31, 2019)

= $51 - (8 + 31) = $12 million

Situation 3. Bosley issued $10 million of stock and declared dividends of $50 million :

Net income = (stockholders' equity, January 31, 2019 plus dividends) minus (stockholders' equity, January 31, 2018 plus Issuance of stock)

= ($31 + 50) - ($51 + 10) = $20 million

Explanation:

a) Data and Calculations:

                                         2018    2019

Total assets                         74       48  

Total liabilities                     23       17  

Total stockholders' equity  51       31

Stockholders' equity according to the accounting equation = Assets minus Liabilities for each year.

b) Situation 1. Bosley issued $5 million of stock and declared no dividends.  

                                                                       ($' million)

Total stockholders' equity, January 31, 2018   51

Add: Issuance of stock                                       5

Net income                                                           0

Less: Dividends declared                                   0

Net loss                                                            (25 )

Total stockholders' equity, January 31, 2019   31

Net Loss = stockholders' equity, January 31, 2018 plus new issue of stock less stockholders' equity, January 31, 2019

= $51 + 5 - 31 = $25 million

c) Situation 2. Bosley issued no stock but declared dividends of $8 million.  

                                                                       ($' million)

Total stockholders' equity, January 31, 2018   51

Add: Issuance of stock                                       0

Net income                                                          0

Less: Dividends declared                                 (8 )

Net loss                                                             (12 )

Total stockholders' equity, January 31, 2019  31

Net loss = stockholders' equity, January 31, 2018 less (dividends + stockholders' equity, January 31, 2019)

= $51 - (8 + 31) = $12 million

d) Situation 3. Bosley issued $10 million of stock and declared dividends of $50 million

                                                                    ($' million)

Total stockholders' equity, January 31, 2018  51

Add: Issuance of stock                                     10

Net income                                                       20

Less: Dividends declared                               (50 )

Net loss                                                              0

Total stockholders' equity, January 31, 2019 31

Net income = (stockholders' equity, January 31, 2019 plus dividends) minus (stockholders' equity, January 31, 2018 plus Issuance of stock)

= ($31 + 50) - ($51 + 10) = $20 million

4 0
3 years ago
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