Question

In January 2007, the Status Quo Company was formed. Total assets were $544,000,ofwhich$306,000 consisted of depreciable fixed assets. Status

Quo uses straight-line depreciation of $30,600peryear,andin2007itestimateditsfixedassetstohaveusefullivesof10years.Aftertaxincomehasbeen$29,000 per year each of the last 10 years. Other assets have not changed since 2007.

a. Compute return on assets at year-end for 2007, 2009, 2012, 2014, and 2016.

(Use $29,000 in the numerator for each year.)

Short answer

Year	Return on assets
2007	5.65%
2009	6.41%
2012	8.05%
2014	9.69%
2016	12.18%

Step-by-step solution

Current Assets for the year ending 2007, 2009, 2012, 2014, and 2016 

$\begin{array}{rcl}\mathrm{Current}\mathrm{assets}& =& \mathrm{Total}\mathrm{assets}-\mathrm{Fixed}\mathrm{assets}\\ & =& \$544,000-\$306,000\\ & =& \$238,000\end{array}$

Fixed assets

Year	Opening balance (a)	Depreciation(b)	Closing balance (a – b)
2007	$306,000	$30,600	$275,400
2008	275,400	30,600	244,800
2009	244,800	30,600	214,200
2010	214,200	30,600	183,600
2011	183,600	30,600	153,000
2012	153,000	30,600	122,400
2013	122,400	30,600	91,800
2014	91,800	30,600	61,200
2015	61,200	30,600	30,600
2016	$30,600	$30,600	0

Total assets

Year	Fixed assets (a)	Current assets (b)	Total assets (a+b)
2007	$275,400	$238,000	$513,400
2009	214,200	238,000	452,200
2012	122,400	238,000	360,400
2014	61,200	238,000	299,200
2016	0	$238,000	$238,000

Return on assets

Year	Net Income (a)	Total assets (b)	Return on assets (a/b)
2007	$29,000	$513,400	5.65%
2009	29,000	452,200	6.41%
2012	29,000	360,400	8.05%
2014	29,000	299,200	9.69%
2016	$29,000	$238,000	12.18%