Question

On January​ 1, 2017 Hilldale Company had total assets of $ 360 comma 000. During the​ year, the company purchased new machinery worth $ 83 comma 000 and promised to pay the amount due after two years. Throughout the​ year, it earned revenue of $ 51 comma 000 every month. Calculate the asset turnover ratio.

A.
1.38 times
B.
1.18 times
C.
1.81 times
D.
1.52 times

Answer 1

A. 1.38 times

Explanation:

We know,

Asset Turnover ratio = Net Sales (or Revenue) / Average Total Assets

Given,

Net Sales (Revenue) = $51,000 x 12 = $612,000

Total Assets = $360,000 + 83,000 = $443,000

Putting the value in the formula, we get,

Asset Turnover ratio = $612,000/443,000

Asset Turnover ratio = 1.38 times

It means total assets generate 1.38 times of sales.