Question

Income statement: 2018

Sales $2,500,000
Cost of goods sold $1,300,000
Net income $200,000

Balance sheets:
2018
Accounts receivable $300,000
Total assets $2,000,000
Total shareholders' equity $900,000

2017
Accounts receivable $200,000
Total assets $1,800,000
Total shareholders' equity $700,000

The asset turnover for 2018 is:

Answer 1

The asset turnover for 2018 is calculated by dividing the sales of $2,500,000 by the average total assets of $1,900,000, resulting in an asset turnover ratio of approximately 1.32.

Step-by-step explanation:

To calculate the asset turnover for 2018, you can use the following formula:

Asset Turnover = Sales / Average Total Assets

The sales figure for 2018 is given as $2,500,000. To find the average total assets, you add the total assets at the beginning of the period (2017) to the total assets at the end of the period (2018) and then divide by 2. Based on the balance sheets provided:

Average Total Assets = ($1,800,000 + $2,000,000) / 2 = $1,900,000

Thus, the asset turnover for 2018 is:

Asset Turnover = $2,500,000 / $1,900,000 ≈ 1.32

This means that for every dollar of assets the company had in 2018, it generated approximately $1.32 in sales.