On January 1, 2017 Hilldale, Inc. had total assets of $368,000. During the year, the company purchased new machinery worth $89,000 and promised to pay the amount due after two years. Throughout the year, it earned revenue of $56,000 every month. Calculate the asset turnover ratio.

Question

Quizplus · Accepted Answer

Asset Turnover Ratio = Revenue / Average Total Assets

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

Beginning Total Assets = $368,000
Ending Total Assets = $368,000 + $89,000 = $457,000

Average Total Assets = ($368,000 + $457,000) / 2 = $412,500

Revenue for the year = $56,000 x 12 = $672,000

Asset Turnover Ratio = $672,000 / $412,500 = 1.63 times, rounded to two decimal places.

Therefore, the best choice is C.