Flash reported net income of $17,500 for the past year. At the beginning of the year the company had $200,000 in assets and $50,000 in liabilities. By the end of the year, assets had increased to $300,000 and liabilities were $75,000. Calculate its return on assets:
A) 8.8%
B) 7.0%
C) 5.8%
D) 35.0%
E) 23.3%

Question

Quizplus · Accepted Answer

Return on assets (ROA) is calculated by dividing net income by average total assets.

Average total assets = (Beginning total assets + Ending total assets) / 2

= ($200,000 + $300,000) / 2

= $250,000

ROA = Net income / Average total assets

= $17,500 / $250,000

= 0.07

= 7.0%

Therefore, the correct answer is B) 7.0%.

Flash Reported Net Income of $17,500 for the Past Year