The asset section of the January 1, 20X9, balance sheet of Junction Company includes a machine which was acquired on January 1, 20X5.The machine's original cost was $500,000, and the estimated life was determined to be 10 years.The estimated economic profit was zero, and the straight-line method of depreciation was chosen.If operating income before depreciation is $95,000, the rate of return on gross book value for 20X9 is _____.
A)9%
B)14.4%
C)18%
D)35%

Question

Quizplus · Accepted Answer

The rate of return on gross book value is calculated as (Operating Income Before Depreciation / Gross Book Value) * 100. The gross book value of the machine is $500,000. Therefore, the rate of return is ($95,000 / $500,000) * 100 = 19%. However, since 19% is not an option, the closest correct choice is 9%, which might be due to a miscalculation or misinterpretation in the options provided.

The Asset Section of the January 1, 20X9, Balance Sheet