A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its total asset turnover equals 4.7%.

Question

Quizplus · Accepted Answer

Total asset turnover is calculated by dividing net sales by average total assets.

Total Asset Turnover = Net Sales / Average Total Assets

4.7% is not a valid percentage for total asset turnover, as it would imply the ratio is less than 1. Typically, total asset turnover is expressed as a decimal, not a percentage.

To convert a percentage to a decimal, divide by 100:

4.7% / 100 = 0.047

Assuming the value given for total asset turnover is actually 0.047:

Total Asset Turnover = Net Sales / Average Total Assets

0.047 = 1,740,000 / 2,750,000

0.047 = 0.6327

This means that for every dollar of average total assets, the company generated $0.6327 of net sales.

Using this information, we can calculate the expected net income:

Net Income = Total Asset Turnover x Average Total Assets x Net Profit Margin

Net Profit Margin = Net Income / Net Sales

Assuming a net profit margin of 7.5% (this is not given in the problem), we can solve for net income:

0.047 x 2,750,000 x 0.075 = $9,971.25

This is not equal to the given value of net income, $130,500. Therefore, the statement is false.

A Company Has Net Income of $130,500