Question

Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be:

Answer 1

The average total assets for Smith Company are $6,000,000.

Step-by-step explanation:

To find the average total assets, we can use the formula for return on assets

(ROA): ROA = Net Income / Average Total Assets. Rearranging the formula, we can solve for Average Total Assets: Average Total Assets = Net Income / ROA.

In this case, the net income is $720,000 and the ROA is 12%. Substituting these values into the formula: Average Total Assets = $720,000 / 0.12. Solving the equation, we find that the average total assets must be $6,000,000.