Logit Co. paid dividends of $400. And retained 33.33% of their earnings. The sales for the year were $12,000 and total assets of 10,000. What was the rate of return on assets?
A) 5%.
B) 6%.
C) 10%.
D) 12%.

Question

Quizplus · Accepted Answer

The rate of return on assets (ROA) is calculated as net income divided by total assets. Given that Logit Co. retained 33.33% of its earnings, it implies that 66.67% of its earnings were paid out as dividends. With $400 paid in dividends, this represents 66.67% of earnings, meaning total earnings were $600 ($400 / 0.6667). The ROA is then $600 (net income) / $10,000 (total assets) = 0.06 or 6%.

Logit Co Paid Dividends of $400