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 use the following formula:

Rate earned on total assets = (Net Income + Interest Expense) / Average Total Assets

First, let's calculate the average total assets:

Average Total Assets = (Total Assets at the end of 2011 + Total Assets at the end of 2012) / 2
= (600,000 + 725,000) / 2
= 662,500

Next, let's substitute the values of net income, interest expense, and average total assets into the formula:

Rate earned on total assets = (115,000 + 30,000) / 662,500
= 0.2049

Finally, we need to convert this decimal into a percentage:

Rate earned on total assets = 20.49%

Rounding this to one decimal point, we get:

Rate earned on total assets = 10.1%

Therefore, the best choice is B, 10.1%.

The Balance Sheets at the End of Each of the First