Question

Jester Corporation's most recent income statement appears below: Income Statement Sales (all on account) $ 230,000 Cost of goods sold 135,000 Gross margin 95,000 Selling and administrative expense 43,000 Net operating income 52,000 Interest expense 13,000 Net income before taxes 39,000 Income taxes (30%) 11,700 Net income $ 27,300 The beginning balance of total assets was $170,000 and the ending balance was $167,400. The return on total assets is closest to

Answer 1

The return on total assets is closest to 21.57%

Step-by-step explanation:

The formula to compute return on total assets is shown below:

Return on total assets = Net income ÷ Average total assets

where,

Net income = Net income + interest × (1 - tax rate )

= $27,300 + 13,000 × (1 - 30%)

= $27,300 + 9,100

= $36,400

And, average total assets = (Opening balance of total assets + Ending balance of total assets) ÷ 2

= ($170,000 + $167,400) ÷ 2

= $168,700

Now put these values on the above formula.

So, return on total assets is equals to

= $36,400 ÷ $168,700

= 21.57%

Hence, The return on total assets is closest to 21.57%