Below is information for the year 2019 for Company A and Company B. Interest expense...
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Accounting
Below is information for the year 2019 for Company A and Company B.
Interest expense $400 $0
Tax expense (40%) $400 $400
Net income $600 $600
Ending balance of total asset $10,000 $10,000
Total debt $5,000 $0
Equity $5,000 $10,000
Required: Compute the following for Year 2019
(a) Return on assets for Company A and B
(b) Financial leverage ratio for Company A and B
(c) Times interest earned ratio, after necessary adjustments for Company A if it capitalized $100 interest costs in the pension obligation during the year.
(d) Company A has used financial leverage to increase its return to its shareholders. Comment on this statement.
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