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 find the rate earned on total assets for 2012, we need to calculate the return on assets (ROA). ROA is calculated by dividing net income by the average total assets.

Average total assets for 2012 can be calculated by adding the total assets at the beginning of the year ($675,000) and the total assets at the end of the year ($800,000) and dividing by two.

Average total assets = ($675,000 + $800,000)/2 = $737,500

ROA = Net Income/Average Total Assets = $115,000/$737,500 = 0.156 
ROA = 15.6%

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

The Balance Sheets at the End of Each of the First