Which of the following statements correctly describe the effect of accruing interest revenue at year-end?
A) Income from operations increases.
B) The net profit margin ratio does not change.
C)The asset turnover ratio increases.
D)The return on assets ratio is affecteD.The accrual of interest revenue increases both total assets and net income, which are the two components of return on assets.

Question

Quizplus · Accepted Answer

Accruing interest revenue at year-end increases both total assets and net income, which are the two components of return on assets. Therefore, the return on assets ratio is affected. Income from operations (A) may or may not be affected by accruing interest revenue, depending on the nature of the business. The net profit margin ratio (B) is calculated by dividing net profit by total revenue, and the accrual of interest revenue does not affect total revenue. The asset turnover ratio (C) is calculated by dividing total revenue by total assets, and the accrual of interest revenue does not affect total revenue.

Which of the Following Statements Correctly Describe the Effect of Accruing