Q9-27 - Horngren'S Financial And Managerial Accounting

Question

Computing asset turnover ratio Blackerby Photo reported the following figures on its December 31, 2018, income statement and balance sheet:

Net sales	\( 441,000
	Dec. 31, 2018	Dec. 31, 2017
Cash	\) 31,000	\( 30,000
Accounts Receivable	\) 68,000	\( 65,000
Merchandise Inventory	\) 80,000	\( 79,000
Prepaid Expenses	\) 16,000	\( 5,000
Property, plant, and equipment, net	\) 175,000	$ 18,000

 

Compute the asset turnover ratio for 2018 Round to two decimal places

Step-by-Step Solution

Answer

Answer

The asset turnover ratio for the year 2018 is 1.55.

Step 1: Definition of Asset Turnover Ratio

The ratio determining the business entity's efficiency in using its assets to generate revenue is the asset turnover ratio. It compares the sales of the business entity with the average total assets. 

Step 2: Calculate Asset Turnover Ratio for Dec 31, 2018 year

$$\begin{gathered} Asset turnover ratio=\frac{Net sales}{Average total asssets} \\ =\frac{\$441,000}{\$283,500} \\ =1.55 \end{gathered}$$

Working note:

Total assets:

Particular	Dec. 31, 2018	Dec. 31, 2017
Cash	$31,000	$30,000
Accounts Receivable	68,000	65,000
Merchandise Inventory	80,000	79,000
Prepaid Expenses	16,000	5,000
Property, plant, and equipment, net	175,000	18,000
Total assets	$370,000	$197,000