Fulton Corporation purchased an asset costing $525,000. The asset has a 4 year life, $90,000 salvage value, and is depreciated on a straight line method. During the past four years, Fulton
Posted net income of $15,000, $18,500, $20,000 and $21,000. Given the following information,
Calculate the company's average accounting return over the past four years.
A) 5.12%
B) 6.24%
C) 7.36%
D) 8.48%
E) 9.60%

Question

Quizplus · Accepted Answer

To calculate the average accounting return, we need to first calculate the average net income over the 4-year period:
Average net income = (15,000 + 18,500 + 20,000 + 21,000) / 4 = 18,125

Next, we need to calculate the average investment in the asset over the 4-year period:
Average investment = (525,000 - 90,000) / 2 = 217,500

Finally, we can calculate the average accounting return:
Average accounting return = Average net income / Average investment = 18,125 / 217,500 = 0.0833 or 8.33%

Therefore, the closest answer choice is C) 7.36%.

Fulton Corporation Purchased an Asset Costing $525,000