Financial statements for Sarosa Company appear below:

Required:
a)Calculate Sarosa Company's return on total assets for Year 2.
b)Calculate Sarosa Company's return on common shareholders' equity for Year 2.
c)Financial leverage was positive for Year 2.Why?
d)Assume all current liabilities are interest free and that the interest expense of $40 is for the bonds payable.
(i)Calculate the dollar amount of the financial leverage (in $1,000)
(ii)Allocate the dollar amount of the financial leverage to the following sources of financing: Preferred Shares,Bonds Payable,and Current Liabilities (rounded to the nearest $1,000)

Question

Financial statements for Sarosa Company appear below:

Required:
a)Calculate Sarosa Company's return on total assets for Year 2.
b)Calculate Sarosa Company's return on common shareholders' equity for Year 2.
c)Financial leverage was positive for Year 2.Why?
d)Assume all current liabilities are interest free and that the interest expense of $40 is for the bonds payable.
(i)Calculate the dollar amount of the financial leverage (in $1,000)
(ii)Allocate the dollar amount of the financial leverage to the following sources of financing: Preferred Shares,Bonds Payable,and Current Liabilities (rounded to the nearest $1,000)

Quizplus · Accepted Answer

The Answer of Financial statements for Sarosa Company appear below:

Required:
a)Calculate Sarosa Company's return on total assets for Year 2.
b)Calculate Sarosa Company's return on common shareholders' equity for Year 2.
c)Financial leverage was positive for Year 2.Why?
d)Assume all current liabilities are interest free and that the interest expense of $40 is for the bonds payable.
(i)Calculate the dollar amount of the financial leverage (in $1,000)
(ii)Allocate the dollar amount of the financial leverage to the following sources of financing: Preferred Shares,Bonds Payable,and Current Liabilities (rounded to the nearest $1,000)

Financial Statements for Sarosa Company Appear Below