Q39E - Horngren'S Financial And Managerial Accounting

Question

Alice Appliance Service had net income for the year of \(58,500. In addition, the balance sheet reports the following balances: Jan 1, 2018 Dec 31, 2018 Notes Payable \) 32,000 $ 58,000 Cash 34,000 134,200 Office Furniture 23,000 44,000 Building 160,000 160,000 Accounts Payable 11,500 11,000 Total Stockholders’ Equity 204,500 333,000 Accounts Receivable 2,200 19,800 Equipment 24,000 42,000 Office Supplies 4,800 2,000 Calculate the return on assets for Alice Appliance Service for the year ending December 31, 2018.

Step-by-Step Solution

Answer

Return on assets is 18%.

Step 1: Calculation of total assets for 2018 beginning

Total assets for 2018 beginning is calculated as follows: 

Total Assets for 2018 Beginning = Cash + Office Furniture + Building + Accounts Receivable + Equipment + Office Supplies

                                                        = $34,000 + $23,00 + $160,000 + $2,200 + $24,000 + $4,800

                                                        = $248,000

Step 2: Calculation of total assets for 2018 end

Total assets for 2018 end is calculated as follows: 

Total Assets for 2018 Beginning = Cash + Office Furniture + Building + Accounts Receivable + Equipment + Office Supplies

                                                        = $134,000 + $44,00 + $160,000 + $19,800 + $42,000 + $2,000

                                                        = $402,000

Step 3: Calculation of return on assets

Return on assets is calculated as follows: 

$\begin{array}{rcl}Return on Assets& =& \frac{Net Income}{{\displaystyle \frac{Beginning Total Assets+Ending Total Assets}{2}}}\\ & =& \frac{\$58,500}{{\displaystyle \frac{\$248,000+\$402,000}{2}}}\\ & =& 18\%\end{array}$

Thus, Return on assets equals 18%.