Homework Answers
Summarized financial information
| Beginning of year | End of the year (Estimated) | End of the year (after bond issue) | |
| Assets | $ 90,000.00 | $ 100,000.00 | $ 137,015.12 |
| Liabilities | $ 30,000.00 | $ 30,000.00 | $ 67,015.12 |
| Equity | $ 60,000.00 | $ 70,000.00 | $ 70,000.00 |
| Net Income | $ 15,000.00 | $ 15,000.00 |
If Bond were issued
| Description | Debit | Credit |
| Assets (cash) | $ 37,015.12 | |
| Liabilities (Bond payable) | $ 30,000.00 | |
| Liabilities (Premium on bond payable) | $ 7,015.12 |
Return on Assets (ROA) = Net Income / Average total assets
Return on Equity (ROE) = Net Income / Average total equity
Debit Ratio = Total liabilities / Total assets
Debt Equity Ratio = Total liabilities / Total equity
| Without Bond issue | If Bonds were issued | |
| Return on assets (ROA) | 15.79% | 12.66% |
| Return on Equity (ROE) | 23.08% | 21.43% |
| Debit Ratio | 31.58% | 40.93% |
| Debt Equity Ratio (D/E) | 46.15% | 69.30% |
| Less: Dividend Paid | $ (5,000.00) |
| Beginning Equity | $ 60,000.00 |
| Add: Net Income for year | $ 15,000.00 |
| Less: Dividend Paid | $ (5,000.00) |
| Closing Equity | $ 70,000.00 |
Add Answer to:
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