Question

The balance sheet of Sub America reports total assets of $400,000 and $450,000 at the beginning and end of the year, respectively. The return on assets for the year is 10%. What is Sub America's net income for the year?A. $42,500.

B. $45,000.
C. $4,250,000.
D. $85,000.

Answer 1

Sub America's net income for the year is A. $42,500

Step-by-step explanation:

Return on assets (ROA) helps an investor see how much after-tax profit a company gained for each dollar in assets, is calculated by formula:

ROA = Net Income/ Average Total Assets

In there:

Average Total Assets = (Beginning Assets + Ending Assets )/2 = (Assets at the beginning of year +Assets at end of year )/2

In Sub America,

Average Total Assets = ($400,000+$450,000)/2 = $425,000

ROA = 10%

Net income = ROA x Average Total Assets = 10% x $425,000 = $42,500