Brown Company has net income of $125,000.Its net sales were $1,739,000 and its average total assets were $2,750,000.Its total asset turnover was 4.5%.

Question

Quizplus · Accepted Answer

The total asset turnover is calculated by dividing net sales by average total assets. Therefore, the total asset turnover for Brown Company would be:

Total Asset Turnover = Net Sales / Average Total Assets
Total Asset Turnover = $1,739,000 / $2,750,000
Total Asset Turnover = 0.632

This means that for every dollar of assets Brown Company has, they generate 63.2 cents of sales. Therefore, the statement that the total asset turnover is 4.5% is false.

Brown Company Has Net Income of $125,000