Cricket Corporation€™s financial statements for 2014 showed the following:

Notice that the company had a debt of only $ 20,000 compared with share capital of $ 200,000. A consultant recommended the following: debt, $ 100,000 (at 10 percent) instead of $ 20,000, and share capital of $ 120,000 (12,000 shares) instead of $ 200,000 (20,000 shares). That is, the company should finance the business with more debt and less owner contribution.
Required (round to the nearest percent):
1. You have been asked to develop a comparison between (a) the actual results and (b) the results based on the consultant€™s recommendation. To do this, you decided to develop the following schedule:

2. Based on the completed schedule in (1), provide a comparative analysis and interpretation of the actual results and the consultant€™s recommendation.

Transcribed Image Text:

Statement of Earnings Revenues Expenses Interest expense Pretax earnings Income tax (30%) Nigs $300,000 (198,000) (2.000 100,000 (30,000) 70,000 Statement of Financial Position Assets Liabilities (average interest rate, 10%) Share capital Retained earnings $300,000 20,000 200,000 80,000 $300,000 Results with an $80,000 Increase in Debt and an Item a. Total debt b. Total assets c. Total shareholders' equity d. Interest expense e. Net earnings f Return on total assets g. Earnings available to shareholders: Actual Results for 2014 $80,000 Decrease in Equity (1) Amount (2) Per share (3) Return on shareholders' equity