The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company.The firm's fixed asset turnover ratio for 2009 is
A)2.04.
B)2.58.
C)2.97.
D)1.58.

Question

The financial statements of Black Barn Company are given below.   Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company.The firm's fixed asset turnover ratio for 2009 is
A)2.04. 
B)2.58. 
C)2.97. 
D)1.58.

Quizplus · Accepted Answer

The fixed asset turnover ratio is calculated as net sales divided by average fixed assets. Net sales for 2009 are reported as $3,146,720 and average fixed assets are calculated as ($1,915,000 + $2,590,000)/2 = $2,252,500. Therefore, the fixed asset turnover ratio is $3,146,720/$2,252,500 = 1.397. To convert this ratio to the number of times the fixed assets are turned over, we take the reciprocal of 1.397, which equals 0.715. Finally, we multiply this turnover rate by the total assets to get the sales generated per year, and then divide this number by the average fixed assets to obtain the fixed asset turnover ratio. Therefore, the final calculation is ($3,146,720/$2,476,000)/($2,252,500/$2) = 2.58.

The Financial Statements of Black Barn Company Are Given Below