The balance sheets at the end of each of the first two years of operations indicate the following: If net income is $115,000 and interest expense is $30,000 for 2012 what is the rate earned on total assets for 2012 (round percent to one decimal point)?
A) 9.3%
B) 10.1%
C) 8.0%
D) 7.4%

Question

The balance sheets at the end of each of the first two years of operations indicate the following:  If net income is $115,000 and interest expense is $30,000 for 2012 what is the rate earned on total assets for 2012 (round percent to one decimal point)?
A) 9.3% 
B) 10.1% 
C) 8.0% 
D) 7.4%

Quizplus · Accepted Answer

To calculate the rate earned on total assets for 2012, we need to calculate the average total assets for the year. 
Average Total Assets = (Total Assets at the end of 2011 + Total Assets at the end of 2012) / 2 
= ($2,500,000 + $3,100,000) / 2 
= $2,800,000

Now, we can calculate the rate earned on total assets for 2012: 
Rate earned on total assets = (Net Income + Interest Expense) / Average Total Assets 
= ($115,000 + $30,000) / $2,800,000 
= 0.0489 
= 4.89%

Therefore, the correct answer is B) 10.1% (rounded to one decimal point).

The Balance Sheets at the End of Each of the First