Q. 16SE - Horngren'S Financial And Managerial Accounting

Question

Calculating ROA Matured Water Services had net income for the month of October of \(50,880. Assets as of the beginning and end of the month totaled \)362,000, and $486,000, respectively. Calculate Matured Water Services' ROA for the month of October

Step-by-Step Solution

Answer

ROA equals 12%.

Step1: Explanation on ROA

Return on assets (ROA)measures the business's profitability by utilizing the total assets of the business.

Step2: Calculation of ROA

ROA is calculated as follows:

$$\begin{gathered} \mathbf{ReturnonAssets}\mathbf{=}\frac{\mathbf{NetIncome}}{\frac{\mathbf{BeginningTotalAssets}\mathbf{+}\mathbf{EndingTotalAssets}}{\mathbf{2}}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{50}\mathbf{,}\mathbf{880}}{\frac{\mathbf{\$}\mathbf{362}\mathbf{,}\mathbf{000}+\mathbf{\$}\mathbf{486}\mathbf{,}\mathbf{000}}{\mathbf{2}}} \\ \mathbf{=}\mathbf{12}\mathbf{\%} \end{gathered}$$

Thus, the return on assets is 12%.