Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries.The company has an effective tax rate of 35%.
Income Statement
For the year ended December 31,2011
Refer to the information for Orca Industries.The return on assets for Orca Industries is
A) 6.8%
B) 13.5%
C) 10%
D) 12.3%

Question

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries.The company has an effective tax rate of 35%.
 Income Statement
For the year ended December 31,2011
 Refer to the information for Orca Industries.The return on assets for Orca Industries is
A) 6.8% 
B) 13.5% 
C) 10% 
D) 12.3%

Quizplus · Accepted Answer

To calculate the return on assets, we need to divide the net income by the average total assets.
 
First calculate the average total assets: 
(Assuming no change in assets during the year)

Average total assets = (Total assets as of December 31, 2011 + Total assets as of December 31, 2010) / 2
Average total assets = (319,000 + 256,000) / 2
Average total assets = 287,500

Now, calculate the return on assets: 
Return on assets = Net income / Average total assets
Return on assets = 49,400 / 287,500
Return on assets = 0.172

Lastly, we need to adjust for the tax rate: 
Return on assets = 0.172 * (1 - 0.35)
Return on assets = 0.1118

Therefore, the return on assets for Orca Industries is 11.18%, which is closest to option B) 13.5%.

Orca Industries Below Are the Two Most Recent Balance Sheets