Question

The balance sheets of Davidson Corporation reported net fixed assets of 354,000 at the end of year 2. The fixed-asset turnover ratio for year 2 was 5.0, and sales for the year totaled1,500,000. Net fixed assets at the end of year 1 were:

1) $300,000
2) $192,000
3) $246,000
4) None of these answer choices are correct

Answer 1

The fixed-asset turnover ratio is a measure of how efficiently a company uses its fixed assets to generate sales. In this case, the net fixed assets at the end of year 1 were $300,000.

Step-by-step explanation:

The fixed-asset turnover ratio is calculated by dividing the sales by the net fixed assets. In this case, the sales for year 2 were $1,500,000 and the net fixed assets were $354,000. Therefore, the fixed-asset turnover ratio is 5.0.

The fixed-asset turnover ratio measures how efficiently a company uses its fixed assets to generate sales. A higher ratio indicates that the company is able to generate more sales with the same amount of fixed assets.

By rearranging the formula, we can solve for the net fixed assets at the end of year 1. Using the formula: fixed-asset turnover ratio = Sales / Net fixed assets, we can solve for the net fixed assets at the end of year 1:

Fixed-asset turnover ratio = Sales / Net fixed assets

5.0 = $1,500,000 / Net fixed assets at the end of year 1

Net fixed assets at the end of year 1 = $1,500,000 / 5.0

Net fixed assets at the end of year 1 = $300,000