On January 1, 2012 Hillop Inc. had total assets of $360,000. During the year, the company purchased new machinery worth $80,000 and promised to pay the amount due after two years. Throughout the year, it earned revenue of $50,000 every month. Calculate the asset turnover ratio.

Question

Quizplus · Accepted Answer

Asset Turnover Ratio = Sales/Total Assets

Total assets at the beginning of the year = $360,000

New machinery purchased during the year = $80,000

Total assets at the end of the year = $360,000 + $80,000 = $440,000

Revenue earned monthly = $50,000

Revenue earned for the year = $50,000 x 12 = $600,000

Asset turnover ratio = $600,000/$400,000 = 1.5 times

Therefore, the correct answer is C) 1.5 times.