Cricket Corporation's financial statements for 2009 showed the following:

Notice in these data that the company had a debt of only $40,000 compared with common stock outstanding of $230,000. A consultant recommended the following: debt, $90,000 (at 10 percent) and common stock outstanding of $180,000 (18,000 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 decided to develop the following schedule:

e. Net income
f. Return on total assets
g. Earnings available to stockholders:
(1) Amount
(2) Per share
(3) Return on stockholders' equity
2. Based on the completed schedule in requirement (1), provide a comparative analysis and interpretation of the actual results and therecommendation.

Transcribed Image Text:

Income Statement Revenues Expenses Interest expense Pretax income Income tax (40%) Net income $300,000 (196,000) (4,000) 100,000 (40,000) S60,000 Balance Sheet Assets S360,000 Liabilities (average interest rate, 10%) Common stock, par $10 Retained earnings S 40,000 230,000 90,000 $360,000 Actual ResultsResults with an Increase in Item for 2009 Deb and Reduction in Equity a. Total debt b. Total assets c. Total stockholders' equity d. Interest expense (total at 10 percent) tel