Use this information for Kellman Company to answer the question that follow. The balance sheets at the end of each of the first two years of operations indicate the following: Kellman Company Year 2 Year 1 Total current assets $600,000 $560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 65,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 600,000 600,000 Paid-in capital in excess of par-Common stock 75,000 75,000 Retained earnings 310,000 210,000 Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year? a. 11.9% b. 10.4% c. 8.4% d. 10.5%

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Business

Hadley Garza

13 June, 21:00

Use this information for Kellman Company to answer the question that follow. The balance sheets at the end of each of the first two years of operations indicate the following: Kellman Company Year 2 Year 1 Total current assets $600,000 $560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 65,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 600,000 600,000 Paid-in capital in excess of par-Common stock 75,000 75,000 Retained earnings 310,000 210,000 Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year? a. 11.9% b. 10.4% c. 8.4% d. 10.5%

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Answers (1)

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Jagger Gonzales · Answer 1

a. 11.9%

Explanation:

The formula to compute the net income is shown below:

Return on assets = (Net income + interest expense) : (average total assets)

where,

Average total assets = (Year 2 current assets + Year 2 Total investments + Year 2 Total property, plant, and equipment) + (Year 1 current assets + Year 1 Total investments + Year 1 Total property, plant, and equipment) : 2

= ($600,000 + $60,000 + $900,000) + ($560,000 + $40,000 + $700,000) : 2

= $2,860,000 : 2

= $1,430,000

And the other items values would remain the same

Now put these values to the above formula

So, the ratio would equal to

= ($150,000 + $20,000) : $ (1,400,000)

= $170,000 : $1,430,000

= 11.89%