Question

Category Prior year Current year Accounts payable 41,400 45,000 Accounts receivable 115,200 122,400 Accruals 16,200 13,500 Additional paid in capital 200,000 216,660 Cash 777 ??? Common Stock @par value 37,600 42,000 COGS 131,400 174,790.00 Depreciation expense 21,600 22.222.00 Interest expense 16,200 16,437.00 Inventories 111,600 115,200 Long-term debt 135,000 139,792.00 Net fixed assets 375,422.00 399,600 Notes payable 59,400 64,800 Operating expenses (excl. depr.) 50,400 67,753.00 Retained earnings 122.400 136,800 Sales 255,600 338,412.00 Taxes 9,900 18,834 00

Hello, I desperately need help with this accounting scenario, I cannot figure out. I am being asked to find the current year's return on assets (ROA). I keep getting the incorrect answer and it tells me that the correct answer is 5.83%. Any help would be greatly appreciated! Thank You!

Answer 1

Solution:

Current year's return on assets = Net Income / Current Year Total Assets.

Current year's return on assets = $ 38,376 / $ 658,552 * 100 = 5.83% Approx

Working:

1)

Income Statement
Sales	$          338,412
Less:Expenses
Cost of goods sold	$       (174,790)
Depreciation Expense	$          (22,222)
Interest Expense	$          (16,437)
Operating Expenses	$          (67,753)
Taxes	$          (18,834)
Net Income	$            38,376

2) Here we have to find total assets, but there is missing cash balance in the question. So, we have to find total assets indirectly. Through accounting equation, we can find total assets

Total Assets = Total Liabilities +Equity = $ 658,552

Total Liabilities and Equity
Accounts Payable	$          45,000
Accruals	$          13,500
Additional paid in capital	$        216,660
Common stock@ par value	$          42,000
Long-term debt	$        139,792
Notes Payable	$          64,800
Retained Earnings	$        136,800
Total	$        658,552