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    Use this information for Kellman Company to answer the question that follow.

    The balance sheets at the end of each of the first 2 years of operations indicate the following:

    Kellman Company
      Year 2 Year 1
    Total current assets $628,300 $551,200
    Total investments 64,400 41,700
    Total property, plant, and equipment 870,100 749,500
    Total current liabilities 106,900 80,700
    Total long-term liabilities 314,000 230,100
    Preferred 9% stock, $100 par 98,500 98,500
    Common stock, $10 par 533,100 533,100
    Paid-in capital in excess of par—Common stock 69,100 69,100
    Retained earnings 441,200 330,900

    Using the balance sheets for Kellman Company, if net income is $100,600 and interest expense is $42,200 for Year 2, what is the return on total assets for the year (rounded to two decimal places)?

    a.4.02%
    b.6.44%
    c.9.83%
    d.7.49%
     

Answer

Assets are resources that are controlled which results from prior transactions that are expected to generate economic benefits in the future.

Liabilities are accumulated financial obligations that result from past events that are expected to require an economic outflow of resources

Answer (c) 9.83%

Solution

Return on total assets = (Net income + Interest expense) / Average total assets

                                    = (100,600+42,200) / [(628,300+551,200+64,400+41,700+870,100+749,500)/2]

                                     = 142,800 / 1,452,600

                                     = 9.83%

 

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