Question

Lok Co. reports net sales of $4,039,000 for Year 2 and $7,862,000 for Year 3. End-of-year balances for total assets are Year 1, $1,635,000; Year 2, $1,800,000; and Year 3, $1,944,000. (1) Compute Lok's total asset turnover for Year 2 and Year 3.

Answer 1

The total asset turnover for Year 2 is 2.35 and for Year 3 is 4.20.

Step-by-step explanation:

To calculate the total asset turnover, we need to divide the net sales by the average total assets. The formula is:

Total Asset Turnover = (Net Sales) / (Average Total Assets)

For Year 2, the average total assets can be calculated by adding the end-of-year balances for Year 1 and Year 2 and dividing the sum by 2. So, the average total assets for Year 2 are ($1,635,000 + $1,800,000) / 2 = $1,717,500. Plugging in the values: Total Asset Turnover for Year 2 = $4,039,000 / $1,717,500 = 2.35

Similarly, for Year 3, the average total assets can be calculated by adding the end-of-year balances for Year 2 and Year 3 and dividing the sum by 2. So, the average total assets for Year 3 are ($1,800,000 + $1,944,000) / 2 = $1,872,000. Plugging in the values: Total Asset Turnover for Year 3 = $7,862,000 / $1,872,000 = 4.20