E15-20 (Trading on the Equity Analysis) Presented below is information from the annual report of
Emporia Plastics, Inc.
Operating income $ 532,150
Bond interest expense 135,000
397,150
Income taxes 183,432
Net income $ 213,718
Bonds payable $1,000,000
Common stock 875,000
Retained earnings 375,000
Instructions
(a) Compute the return on common stock equity and the rate of interest paid on bonds. (Assume balances
for debt and equity accounts approximate averages for the year.)
(b) Is Emporia Plastics Inc. trading on the equity successfully? Explain.
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