The total assets of the Philbin Company on January 1,20 × 9 were $2.3 million and on December 31,20 × 9 were $2.5 million.Net income for 20 × 9 was $188,000.Dividends for 19 × 9 totalled $75,000,interest expenses totalled $70,000,and the tax rate was 30%.The return on total assets for 20 × 9 was closest to:
A) 6.8%.
B) 9.5%.
C) 9.9%.
D) 10.8%.

Question

Quizplus · Accepted Answer

The formula for return on total assets is:

Return on Total Assets = Net Income / Average Total Assets

To calculate the average total assets, we need to add the beginning and ending total assets and divide by 2:

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
= ($2.3 million + $2.5 million) / 2
= $2.4 million

Now we can calculate the return on total assets for 20 × 9:

Return on Total Assets = Net Income / Average Total Assets
= $188,000 / $2.4 million
= 7.83%

However, this is the before-tax return. To calculate the after-tax return, we need to subtract the tax rate:

After-Tax Return on Total Assets = Before-Tax Return on Total Assets × (1 - Tax Rate)
= 7.83% × (1 - 0.3)
= 5.48%

Therefore, the closest answer is C) 9.9%.

The Total Assets of the Philbin Company on January 1,20