Question

Excerpts from Dowling Company's December 31, 2018 and 2017, financial statements and key ratios are presented below (all numbers are in millions):2018 2017Accounts receivable (net) $ 20 $ 16Net sales $ 115 100Cost of goods sold $ 60 55Net income $ 20 17Inventory turnover 5.22Return on assets 10.3 %Equity Multiple 2.36Dowling's average total assets for 2018 is (rounded):

(A) 115.(B) 32.(C) 210.(D) 194.

Answer 1

Option (D) is correct.

Step-by-step explanation:

Return on equity:

= Return on assets × Equity multiple

= 10.3% × 2.36

= 24.308%

Profit margin:

= Net income ÷ Sales

= $20 ÷ $115

= 17.39%

Average total assets is calculated as follows:

Return on assets = Net income ÷ Average total assets

10.3% = $20 ÷ Average total assets

Average total assets = $194.17