ExpertHard1 markMultiple Choice
CPA · Question 13 · Area I: Financial Reporting
Quantum Corp. has the following financial data for Year 1:<br/>- Net income: $240,000<br/>- Total assets (beginning): $1,800,000<br/>- Total assets (ending): $2,200,000<br/>- Total equity (beginning): $900,000<br/>- Total equity (ending): $1,100,000<br/><br/>What is Quantum Corp.'s return on assets (ROA) for Year 1?
Quantum Corp. has the following financial data for Year 1:<br/>- Net income: $240,000<br/>- Total assets (beginning): $1,800,000<br/>- Total assets (ending): $2,200,000<br/>- Total equity (beginning): $900,000<br/>- Total equity (ending): $1,100,000<br/><br/>What is Quantum Corp.'s return on assets (ROA) for Year 1?
Answer options:
A.
10.9%
B.
12%
C.
13.3%
D.
24%
How to approach this question
Calculate ROA as net income divided by average total assets. Average total assets = (beginning assets + ending assets) ÷ 2. Express as a percentage.
Full Answer
B.12%✓ Correct
12%
Return on assets (ROA) is a profitability ratio that measures how effectively a company uses its assets to generate earnings. The formula is Net Income ÷ Average Total Assets. Using average assets provides a better measure than beginning or ending assets alone.
Common mistakes
Using beginning or ending assets instead of average assets, confusing ROA with ROE (return on equity), or forgetting to convert to percentage
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