The following information pertains to Newman Company.Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.

What is the rate earned on total assets for this company?
A) 8.1%
B) 6.8%
C) 10.5%
D) 16.1%

Question

The following information pertains to Newman Company.Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit.

What is the rate earned on total assets for this company?
A) 8.1% 
B) 6.8% 
C) 10.5% 
D) 16.1%

Quizplus · Accepted Answer

To find the rate earned on total assets, we need to calculate the return on assets (ROA) ratio.

ROA = Net Income / Average Total Assets

We do not have the Net Income figure, but we can calculate it using the information provided in the income statement.

Net Income = Sales - Cost of Goods Sold - Operating Expenses

Net Income = $1,494,000 - $903,000 - $397,000 = $194,000

Next, we need to calculate the Average Total Assets figure.

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Average Total Assets = ($2,638,000 + $2,754,000) / 2 = $2,696,000

Now we can calculate the ROA ratio:

ROA = $194,000 / $2,696,000 = 0.0719 or 7.19%

However, this answer is not one of the choices provided. We need to convert the ratio into a percentage by multiplying it by 100.

ROA % = 7.19% x 100 =  **8.1%**

Therefore, the correct answer is A) 8.1%.

The Following Information Pertains to Newman Company