The following selected data were taken from the financial statements of the Berr
ID: 2337092 • Letter: T
Question
The following selected data were taken from the financial statements of the Berrol Group for December 31, 2012, 2011, and 2010: Dec. 31, 2012 Dec.31, 2011 Dec. 31, 2010 Total assets $3,000,000 $2,700,000 $2,400,000 Notes payable (10% interest) 1,000,000 1,000,000 1,000,000 Common stock 400,000 400,000 400,000 Preferred $6 stock, $100 par (no change during year) 200,000 200,000 200,000 Retained earnings 1,126,000 896,000 600,000 The 2012 net income was $242,000 and the 2011 net income was $308,000. No dividends on common stock were declared between 2010 and 2012. The Rate Earned on Total Assets for 2011 is: Note: No special instruction is given in this problem, so use the appropriate average needed. (round your answer to one decimal point) a) 8.2% b) 16.0% c) 15.1% d) 12.4%
Explanation / Answer
Option B 16%
Rate Earned on Total Assets for 2011 = (Net income for 2011 + Interest) / Average Total Assets
Rate Earned on Total Assets for 2011 = (308000 + 100000) / ((2700000 + 2400000)/2)
Rate Earned on Total Assets for 2011 = 408000 / 2550000
Rate Earned on Total Assets for 2011 = 16%
Rate Earned on Total Assets will always be calculated on Earnings before Interest and Tax