Question

Flitter reported net income of $25,000 for the past year. at the beginning of the year the company had $215,000 in assets and $65,000 in liabilities. by the end of the year, assets had increased to $315,000 and liabilities were $90,000. calculate its return on assets:

Answer 1

Capital at 1/1=215,000−65,000
=150,000

Capital at 31/12= 315,000−90,000
=225,000

Net income for the current year
225,000−150,000=75,000

Return on assets
75,000÷315,000=0.238×100=23.8%

Answer 2

9.43%

Step-by-step explanation:

Formula for Return on assets (ROA) = Net income ÷ Average total assets

Net income= $25,000

Average total assets = $(215000 + 315000) ÷ 2

= 530000 ÷ 2 = 265000

ROA = 25000 ÷ 265000

= 0.0943

Return on assets = 9.43%