Rural Hydroponics has total equity of $560,000; sales of $2,250,000; current assets of $700,000; and total liabilities of $435,000.What is Rural Hydroponics' total asset turnover?

Question

Quizplus · Accepted Answer

Total Asset Turnover = Sales / Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Ending Total Assets = Total Equities + Total Liabilities = $560,000 + $435,000 = $995,000
Beginning Total Assets = Ending Total Assets - Increase in Current Assets
Increase in Current Assets = Current Assets - Previous Current Assets
Previous Current Assets = Current Assets - Increase in Current Assets
Assuming increase in current assets is equal to 0, Previous Current Assets = $700,000
Beginning Total Assets = $995,000 - ($700,000 - $0) = $295,000
Average Total Assets = ($295,000 + $995,000) / 2 = $645,000
Total Asset Turnover = $2,250,000 / $645,000 = 3.49 (rounded to two decimal places)
Therefore, the best choice is C.

Rural Hydroponics Has Total Equity of $560,000; Sales of $2,250,000;