Asked by Minnie Jones on Jul 22, 2024
Verified
Flash reported net income of $17,500 for the past year. At the beginning of the year the company had $200,000 in assets and $50,000 in liabilities. By the end of the year, assets had increased to $300,000 and liabilities were $75,000. Calculate its return on assets:
A) 8.8%
B) 7.0%
C) 5.8%
D) 35.0%
E) 23.3%
Net Income
Profit of a company after all expenses, including taxes and costs, have been subtracted from total revenue.
Assets
Economic resources owned or controlled by a business or individual, which are expected to produce value or benefit in the future.
- Compute and elucidate the return on assets metric.
Verified Answer
SM
Sophia MorrowJul 26, 2024
Final Answer :
B
Explanation :
Return on assets (ROA) is calculated by dividing net income by average total assets.
Average total assets = (Beginning total assets + Ending total assets) / 2
= ($200,000 + $300,000) / 2
= $250,000
ROA = Net income / Average total assets
= $17,500 / $250,000
= 0.07
= 7.0%
Therefore, the correct answer is B) 7.0%.
Average total assets = (Beginning total assets + Ending total assets) / 2
= ($200,000 + $300,000) / 2
= $250,000
ROA = Net income / Average total assets
= $17,500 / $250,000
= 0.07
= 7.0%
Therefore, the correct answer is B) 7.0%.
Learning Objectives
- Compute and elucidate the return on assets metric.