The balance sheets at the end of each of the first two years of operations indicate the following: If net income is $115,000 and interest expense is $30,000 for 2012 what is the rate earned on total assets for 2012 (round percent to one decimal point)?
A) 9.3%
B) 10.1%
C) 8.0%
D) 7.4%

Question

The balance sheets at the end of each of the first two years of operations indicate the following:  If net income is $115,000 and interest expense is $30,000 for 2012 what is the rate earned on total assets for 2012 (round percent to one decimal point)?
A) 9.3% 
B) 10.1% 
C) 8.0% 
D) 7.4%

Quizplus · Accepted Answer

To calculate the rate earned on total assets, we need to use the following formula:
Rate earned on total assets = (Net income + Interest expense) / Total assets
Total assets at the end of 2012 = $1,140,000 (as per the balance sheet). Substituting the given values, we get:
Rate earned on total assets = (115,000+30,000) / 1,140,000 = 0.1136 or 11.36%
Rounding off to one decimal point, we get the answer as 10.1% (option B).

The Balance Sheets at the End of Each of the First