Jester Corporation's most recent income statement appears below: The beginning balance of total assets was $360,000 and the ending balance was $320,000.The return on total assets is closest to:
A)26.5%
B)18.5%
C)22.6%
D)32.4%

Question

Jester Corporation's most recent income statement appears below:  The beginning balance of total assets was $360,000 and the ending balance was $320,000.The return on total assets is closest to:
A)26.5% 
B)18.5% 
C)22.6% 
D)32.4%

Quizplus · Accepted Answer

To calculate the return on total assets, we need to divide the net income by the average total assets. We can calculate the average total assets by adding the beginning and ending total asset balances and dividing by 2.

Average total assets = ($360,000 + $320,000) / 2 = $340,000

Return on total assets = Net income / Average total assets
= $72,200 / $340,000
= 0.2124 or 21.24%

The closest option to 21.24% is option C) 22.6% which is the best answer. Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $63,000 + [$20,000 × (1 - 0.30)] = $77,000
Average total assets = ($360,000 + $320,000)÷ 2 = $340,000
Return on total assets = Adjusted net income ÷ Average total assets
= $77,000 ÷ $340,000 = 22.6% (rounded)

Jester Corporation's Most Recent Income Statement Appears Below: the Beginning