Question

ACME Corp’s balance reported that it had $650,000 in liabilities and $275,000 in equity. On the...

ACME Corp’s balance reported that it had $650,000 in liabilities and $275,000 in equity. On the income statement the company had revenues of $867,030 and expenses (excluding depreciation) of $356,240. Depreciation was $103,456 and interest expense of $52,423. Assuming a 40% tax rate, what was the company's return on assets? PLEASE SHOW ALL WORK.

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Answer #1

Formula for return on assets is:

Return on assets = Net income / Total assets * 100

First we will calculate total assets as below:

Total assets = Liabilities + Equity

Total assets = $650000 + $275000 = $925000

Next, we will calculate net income as per below:

Net income = (Revenues - Expenses - Depreciation - Interest expense) * ( 1- tax rate)

Net income = ($867030 - $356240 - $103456 - $52423) * ( 1 - 40%)

Net income = $354911 * 60%

Net income = $212946.6

Now, Return on assets is:

Return on assets = Net income / Total assets * 100

Return on assets = $212946.6 / $925000 * 100

Return on assets = 23.02%

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