Q17E - Horngren'S Financial And Managerial Accounting

Question

Computing rate of return on total assets

Montane Exploration Company reported these figures for 2018 and 2017:

Income statement: Partial	2018	2017
Interest expenses	\(16,700,000	\)16,500,000
Net income	16,900,000	20,200,000
Balance sheet: Partial	Dec 31, 2018	Dec 31, 2017
Total assets	\(316,000,000	\)420,000,000

 

Compute the rate of return on total assets for 2018. (Round to two decimals.)

Step-by-Step Solution

Answer

The rate of return on total assets is 9.13%.

Definition of Total Assets

Total assets can be defined as the total amount of resources the business entity possesses for operating a business. It includes resources such as machinery, plant and building.

Calculation of Rate of Return on Total Assets

$$\begin{gathered} \text{Rate of return on total assets}=\frac{\text{Net income+Interest expenses}}{{\displaystyle \frac{\text{Beginning assets+Ending assets}}{2}}}\times 100 \\ =\frac{\$16,900,000+\$16,700,000}{{\displaystyle \frac{\$316,000,000+\$420,000,000}{2}}}\times 100 \\ =\frac{\$33,600,000}{\$368,000,000}\times 100 \\ =9.13\% \end{gathered}$$