What is AboveAverage\'s return on assets (ROA)? AboveAverage Corporation (AAC) B

Question

What is AboveAverage's return on assets (ROA)?

AboveAverage Corporation (AAC) Balance Sheet 2014 2013 Assets Current assets:    Cash $3,916,040 $4,386,040 Marketable securities $2,525,000 $1,875,000    Accounts receivable, net 3,249,500 $3,055,500    Inventories 2,990,000 3,040,000         Total current assets 12,680,540 $12,356,540 Net Fixed assets 2,225,500 $2,000,000 Non-amortizable intangible assets 125,000 $90,000         Total assets $15,031,040 $14,446,540 Liabilities and Stockholders’ Equity Current Liabilities:    Notes Payable due within one year $1,000,000 $1,000,000    Accounts payable and accrued liabilities 2,221,000 $2,091,500    Federal income taxes payable 130,000 $300,000         Total current liabilities 3,351,000 $3,391,500 Notes payable due after one year 2,000,000 $3,000,000 Long-term bonds 1,500,000 $2,465,000 Stockholders’ equity:    Preferred stock 240,000 $240,000    Capital stock 1,000,000 $600,000    Additional paid-in capital 4,000,000 $2,400,000    Retained earnings 2,940,040 $2,350,040         Total stockholders’ equity 8,180,040 $5,590,040         Total liabilities and stockholders’ equity $15,031,040 $14,446,540

Explanation / Answer

Above Average All Amounts in $ Return on Assets = Net Income / Average Total Assets Average Assets = (14,446,540 + 15,031,040) / 2 = 14738790 Thus, Return on Total Assets = 1,008,000 / 14,738,790 = 6.84% Since 6.71% is closest to this value, hence that is considered as the correct solution.

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