Degollado Corporation's most recent income statement appears below: Sales (all on account)$140,000 Cost of goods sold 60,000 Gross margin 80,000 Selling and administrative expense 30,000 Net operating income 50,000 Interest expense 10,000 Net income before taxes 40,000 Income taxes (30%) 12,000 Net income$28,000 The beginning balance of total assets was $200,000 and the ending balance was $220,000.Required:Compute the return on total assets. Show your work!
What will be an ideal response?
Average total assets = ($200,000 + $220,000) ÷ 2 = $210,000
Return on total assets = Adjusted net income* ÷ Average total assets
= $35,000 ÷ $210,000 = 16.7%
*Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $28,000 + [$10,000 × (1 - 0.30)] = $35,000
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