The Baily Division recorded operating data as follows for the past two years:

$\begin{array}{|l|r|r|}
\hline& \text { Year 1 } & \text { Year 2 } \
\hline \text { Sales } & ? & \$ 1,200,000 \
\hline \text { Shareholders' Equity } & \$ 540,000 & \$ 720,000 \
\hline \text { Average Operating Assets } & \$ 600,000 & ? \
\hline \text { Margin } & 15 \% & ? \
\hline \text { Return on Investment } & 22.5 \% & 18 \% \
\hline
\end{array}$
$\text { Baily Division's turnover was exactly the same in both Year } 1 \text { and Year } 2 .$

-What were the average operating assets in Year 2?
A) $720,000.
B) $750,000.
C) $800,000.
D) $900,000.

Question

The Baily Division recorded operating data as follows for the past two years:

$\begin{array}{|l|r|r|} 
\hline& \text { Year 1 } & \text { Year 2 } \
\hline \text { Sales } & ? & \$ 1,200,000 \
\hline \text { Shareholders' Equity } & \$ 540,000 & \$ 720,000 \
\hline \text { Average Operating Assets } & \$ 600,000 & ? \
\hline \text { Margin } & 15 \% & ? \
\hline \text { Return on Investment } & 22.5 \% & 18 \% \
\hline
\end{array}$
$\text { Baily Division's turnover was exactly the same in both Year } 1 \text { and Year } 2 .$

-What were the average operating assets in Year 2?
A) $720,000.
B) $750,000.
C) $800,000.
D) $900,000.

Quizplus · Accepted Answer

The turnover is calculated as Sales divided by Average Operating Assets. Since turnover is the same for both years, we can set up the equation: $ \frac{Sales_{Year 1}}{600,000} = \frac{1,200,000}{Average Operating Assets_{Year 2}} $. Using the ROI formula $ ROI = Margin \times Turnover $, we find that $ Turnover = \frac{ROI}{Margin} $. For Year 1, $ Turnover = \frac{22.5\%}{15\%} = 1.5 $. Therefore, $ 1.5 = \frac{1,200,000}{Average Operating Assets_{Year 2}} $, solving gives Average Operating Assets in Year 2 as $800,000.

The Baily Division Recorded Operating Data as Follows for the Past