Question

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. The return on assets for the year is 10%. What is Hidden Valley's net income for the year?a. $5,000,000.b. $55,000.c. $5,500,000.d. $50,000.

Answer 1

The correct answer is D that is $50,000

Step-by-step explanation:

The net income is computed as:

Return on Assets = Net Income / Average Total assets

where

Return on assets is 10%

Average Total assets = Beginning total assets + Ending total assets / 2

= ($450,000 + $550,000) / 2

= $1,000,000 / 2

= $500,000

Putting the values in the above formula:

10% = Net Income / $500,000

Net Income = 0.1 × $500,000

Net Income = $50,000