Garrott Corporation's total assets were $1,505,000 at the end of Year 2 and $1,520,000 at the end of Year 1.Its total stockholders' equity was $1,197,000 at the end of Year 2 and $1,180,000 at the end of Year 1. The company's return on total assets for Year 2 is closest to:

Question

Garrott Corporation's total assets were $1,505,000 at the end of Year 2 and $1,520,000 at the end of Year 1.Its total stockholders' equity was $1,197,000 at the end of Year 2 and $1,180,000 at the end of Year 1.  The company's return on total assets for Year 2 is closest to:

Quizplus · Accepted Answer

Return on total assets = Adjusted net income* ÷ Average total assets**
= $31,400 ÷ $1,512,500 = 2.08% (rounded)
*Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $25,100 + [$9,000 × (1 - 0.30)] = $31,400
**Average total assets = ($1,505,000 + $1,520,000)÷ 2 = $1,512,500

Garrott Corporation's Total Assets Were $1,505,000 at the End of Year