The balance sheet of Orion Medical Equipment reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.The cash return on assets for the year is 10%.What is Orion's net operating cash flows for the year?

Question

Quizplus · Accepted Answer

The cash return on assets is calculated as net operating cash flows divided by average total assets. We are given the beginning and ending total assets, but we do not have information about the changes in assets during the year. Therefore, we cannot calculate the average total assets for the year. Instead, we can use the information given to estimate net operating cash flows:

Beginning assets = $450,000
Ending assets = $550,000
Change in assets = $550,000 - $450,000 = $100,000
Average assets = ($450,000 + $550,000) / 2 = $500,000
Cash return on assets = 10%

10% = net operating cash flows / $500,000
Net operating cash flows = 0.1 * $500,000 = $50,000

Therefore, the best choice is D, with the explanation that we cannot directly calculate net operating cash flows, but we can estimate it using the cash return on assets and average total assets.

The Balance Sheet of Orion Medical Equipment Reports Total Assets