Question

Flitter reported net income of $20,500 for the past year. At the beginning of the year the company had $206,000 in assets and $56,000 in liabilities. By the end of the year, assets had increased to $306,000 and liabilities were $81,000. Calculate its return on assets:

Answer 1

8.00%

Step-by-step explanation:

The computation of the return on total assets is shown below:

Return on assets = (Net income) ÷ (average of total assets)

where,

Net income is $20,500

Average total assets = (Beginning total assets + ending total assets) ÷ 2

= ($206,000 + $306,000) ÷ 2

= $256,000

Now put these values to the above formula

So, the ratio would equal to

= $20,500 ÷ $256,000

= 8.00%