5TI - Horngren'S Financial And Managerial Accounting

Question

Lee Co. reported the following items on its 2018 financial statements:

Total Assets, December 31, 2018	$10,000
Total Assets, December 31, 2017	15,000
For year ended December 31, 2018
Interest Expenses	150
Net income	850

 

Determine Lee’s rate of return on total assets for 2018.

Step-by-Step Solution

Answer

Return on total assets is 8%.

Definition of Rate of Return

Gain generated or loss incurred by holding an investment over time reflected in percentage is known as the rate of return. 

Rate of Return on Total Assets

$\begin{array}{rcl}\mathrm{Return} \mathrm{on} \mathrm{total} \mathrm{assets}& =& \frac{\mathrm{Net} \mathrm{income}+\mathrm{Interest} \mathrm{expense}}{\mathrm{Average} \mathrm{total} \mathrm{assets}}\times 100\\ & =& \frac{\$850+\$150}{{\displaystyle \frac{\$10,000+\$15,000}{2}}}\times 100\\ & =& \frac{\$1,000}{\$12,500}\times 100\\ & =& 8\%\end{array}$