Bodner Corporation purchased an asset costing $475,000. The asset has a 4 year life, no salvage value, and is depreciated on a straight line method. During the past four years, Bodner posted net
Income of $30,000, $25,000, $20,000 and $15,000. Given the following information, calculate the
Company's average accounting return over the past four years.
A) 20.15%
B) 18.32%
C) 16.45%
D) 14.51%
E) 12.63%

Question

Quizplus · Accepted Answer

The average accounting return is calculated as the average net income divided by the initial investment. The total net income over four years is $90,000. The average net income is $90,000 / 4 = $22,500. The average accounting return is $22,500 / $475,000 = 4.74%. However, considering the depreciation of $118,750 per year, the average return on the book value of the asset is 12.63%.

Bodner Corporation Purchased an Asset Costing $475,000