Last year the return on total assets in Jeffrey Company was 8.5%.The total assets were 2.9 million at the beginning of the year and 3.1 million at the end of the year.The tax rate was 30%,interest expense totaled $110 thousand,and sales were $5.2 million.Net income for the year was:
A)$145,000
B)$222,000
C)$332,000
D)$178,000

Question

Quizplus · Accepted Answer

Average total assets = ($2,900,000 + $3,100,000)F1F1F1S1F1F1F10 2 = $3,000,000
Return on total assets = Adjusted net income F1F1F1S1F1F1F10 Average total assets
8.5% = Adjusted net income F1F1F1S1F1F1F10 $3,000,000
Adjusted net income = 8.5% F1F1F1S1F1F1F10 $3,000,000 = $255,000
Adjusted net income = Net income + [Interest expense F1F1F1S1F1F1F10 (1-Tax rate)]
$255,000 = Net income + [$110,000 F1F1F1S1F1F1F10 (1 - 0.30)]
Net income = $255,000 - $110,000 F1F1F1S1F1F1F10 0.70 = $178,000

Last Year the Return on Total Assets in Jeffrey Company