Question

Alurve Appliance Service had net income for the year of $ 30, 400. In addition, the balance sheet reports the following balances:Jan. 1, 2016 Dec31, 2016Accounts Receivable $ 5,600 $ 14,200Accounts Payable 12,000 9,500Building 125,000 125,000Cash 37,500 35,000Office Furniture 25,000 50,000Office Supplies 3,200 1,500Notes Payable 60,000 75,000Total Stockholders' Equity 124,300 141,200Calculate the return on assets (ROA ) for the year ending December 31, 2016.

Answer 1

Answer:

Return on Assets for the year 2016 = 13.47%

Explanation:

Return on Assets is calculated as a percentage of net income on total assets.

Here, total assets on December 31 = Accounts Receivables + Building + Cash + Furniture + Office Supplies = $14,200 + $125,000 + $35,000 + $50,000 + $1,500 = $225,700

Total assets can also be calculated using Liabilities + Owner's Equity

= $141,200 + $75,000 + $9,500 = $225,700

Return on Assets = $\frac{Net\ Income}{Total\ Assets} \times 100$

= $\frac{30,400}{225,700} \times 100 = 13.47%$

Return on Assets for the year 2016 = 13.47%