P10-9A $920 amortization Prepare all journal entries necessary to correct any er

Question

P10-9A

$920 amortization Prepare all journal entries necessary to correct any errors made during 2017 books have not yet been closed for 2017 nstructions Assume the P10-SA LaPorta Company and Lott Corporation, two corporations of roughl sate company depreciates its plant assets using the straight-line approach. An investigation of their financial reveals the following information. size, are both involved in the manufacture of in-line skates. Each cohe sa Net income Sales revenue Average total assets Average plant assets LaPorta Co. S 800,000 1,300,000 2,500,000 1,800,000 Lott Corp. $1,000,000 1,180,000 2,000,000 1,000,000 Instructions (a) For each company, calculate the asset turnover Based on your calculations in part (a), comment on the relative effective of the two companies in using their assets to generate sales and produce net eness income

Explanation / Answer

(a)Calculation of Asset turnover: Asset turnover= Net sales/average total assets LaPorta Co. : Assets turnover= 1300000/2500000= 0.52 Asset turnover is 0.52 Lott Corp. : Assets turnover= 1180000/2000000= 0.59 Asset turnover is 0.59 (b) Higher the asset turnover ratio, better it is for the company because it means the company is using its assets more efficiently. So Lott Corp. is using its assets more efficiently. Return on total assets= Net income/ average total assets*100 LaPorta Co. : Return on assets= 800000/2500000*100= 32% Return on assets= 32% Lott Corp. : Return on assets= 1000000/2000000*100= 50% Return on assets= 50% As the return on assets of Lott Corp. is higher than that of LaPorta Co. so Lott Corp. is more efficiently managing its assets to produce income.

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