A farm business manager has just finished preparing end of year financial statements for the business....
A farm business manager has just finished preparing end of year financial statements for the business. The following financial information was determined:
Current assets – beginning of year $200,000
Total assets – beginning of year $600,000
Current liabilities – beginning of year $100,000
Total liabilities – beginning of year $150,000
Total equity – beginning of year $450.000
Current assets – end of year $250,000
Total assets – end of year $800,000
Current liabilities – end of year $150,000
Total liabilities – end of year $300,000
Total equity – end of year $500,000
Gross revenue $600,000
Net farm income from operations $115,000
Operating expense $425,000
Farm interest expense $20,000
Depreciation expense $45,000
Owner withdrawals (for unpaid labor and Mgt.) $50,000
Non-farm income $35,000
What is the farm business' asset turnover ratio?
| a. |
.8571 |
|
| b. |
1.33 |
|
| c. |
.5567 |
|
| d. |
.7514 |
Homework Answers
Answer:- Option (a):- 0.8571
Explanation:-
Asset's Turnover Ratio = Net Sales / Average Total Assets
Net Sales = Gross Sales/Gross Revenue - sales return - Allowances - discounts
Average Total Assets = (Total Assets at the beginning + Total Assets at the end) / 2
So,
- Net Sales = $600000 (Gross Revenue)
- Average Total Assets = ($600,000 + $800,000) / 2 = $1400000 /2 = $700000
Asset's Turnover Ratio = $600000 / $700000 = 0.8571428571
So, the Asset's Turnover Ratio is 0.8571
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