Parkinson Company provides the following financial information: $$\begin{array} { | l | r | }
\hline \text { Income from operations } & \$ 200,000 \
\hline \text { Interest expense } & 45,000 \
\hline \text { Gains/(losses) on sale of equipment } & ( 2,500 ) \
\hline \text { Net income } & 152,500 \
\hline \text { Total assets at Jan 1 } & 2,600,000 \
\hline \text { Total assets at Dec } 31 & 3,200,000 \
\hline
\end{array}$$ Calculate return on investment based on the information given above.

Question

Parkinson Company provides the following financial information: $$\begin{array} { | l | r | } 
\hline \text { Income from operations } & \$ 200,000 \
\hline \text { Interest expense } & 45,000 \
\hline \text { Gains/(losses) on sale of equipment } & ( 2,500 ) \
\hline \text { Net income } & 152,500 \
\hline \text { Total assets at Jan 1 } & 2,600,000 \
\hline \text { Total assets at Dec } 31 & 3,200,000 \
\hline
\end{array}$$ Calculate return on investment based on the information given above.

Quizplus · Accepted Answer

Return on investment is calculated by dividing net income by average total assets.

Average total assets = (beginning total assets + ending total assets) / 2
= (2,600,000 + 3,200,000) / 2
= 2,900,000

Return on investment = net income / average total assets
= 152,500 / 2,900,000
= 0.0526 or 5.26%

Rounding to one decimal place gives the answer of 6.9%, which is option C.

Parkinson Company Provides the Following Financial Information Calculate Return on Investment Based on the Information Given Above