/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 9 Asset Turnover The Kingwood Comp... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 9: Problem 9

Asset Turnover The Kingwood Company reported sales revenue of \(\$ 520,000\) and average total assets of \(\$ 500,000\). Calculate the company's asset turnover.

Short Answer

Expert verified
The asset turnover is 1.04.

Step by step solution

01

Understanding Asset Turnover

The asset turnover ratio measures how efficiently a company uses its assets to generate sales. It is calculated using the formula: \[ \text{Asset Turnover} = \frac{\text{Sales Revenue}}{\text{Average Total Assets}} \]
02

Substituting the Given Values

We know from the problem that the sales revenue (\( \text{Sales Revenue} \)) is \( \\(520,000 \) and the average total assets (\( \text{Average Total Assets} \)) is \( \\)500,000 \). Substitute these values into the asset turnover formula: \[ \text{Asset Turnover} = \frac{\\(520,000}{\\)500,000} \]
03

Performing the Calculation

Divide the sales revenue by the average total assets to find the asset turnover ratio: \[ \text{Asset Turnover} = \frac{520,000}{500,000} = 1.04 \]
04

Interpreting the Result

The asset turnover of 1.04 indicates that for every dollar of assets, Kingwood Company generates \( \$1.04 \) in sales revenue. This shows the efficiency of the company's asset usage.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Sales Revenue
Sales revenue represents the total income a company earns from selling its goods or services. It's a crucial figure for businesses, as it shows how successful they are at generating revenue from their core operations. Sales revenue does not account for any costs involved in producing those goods or services.

To calculate sales revenue, take the total number of units sold and multiply by the selling price per unit. For example, if a company sells 1,000 units of their product at $50 each, the sales revenue would be $50,000.

Sales revenue is often presented in the company's income statement, which is a key financial document used to evaluate overall performance, profitability, and growth potential.
Average Total Assets
Average total assets provide insight into the overall assets a company has over a certain period, typically a year. It is calculated by finding the average at the beginning and end of the period of all company assets, including current and fixed assets.

To determine average total assets, you will add the beginning total assets and the ending total assets, then divide by two. This metric helps assess how effectively a company is using its assets to generate revenue over time.

Understanding average total assets is crucial as it serves as an essential part for calculating the asset turnover ratio, which reflects the efficiency with which a company's assets are leveraged to produce sales.
Efficiency Ratio Calculation
The efficiency ratio calculation, specifically through the example of asset turnover, tells us how good a company is at using its assets to produce sales. It's particularly important because it shows not just how much a company is earning, but how well they are doing so with what they have.

To calculate the asset turnover, use the formula: \[ ext{Asset Turnover} = \frac{\text{Sales Revenue}}{\text{Average Total Assets}} \]
In Kingwood Company's example, they have a sales revenue of \(520,000 and average total assets of \)500,000.Substituting these values into the formula gives:\[ \frac{520,000}{500,000} = 1.04 \]
This result indicates that for every \(1 worth of assets, the company generates \)1.04 in sales, a good measure of efficiency. Companies often aim for higher asset turnover to demonstrate strong productivity in asset usage.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Accounting for Plant and Intangible Assets Selected transactions of Global Publishers, Inc., for 2019 are given below: Jan. 2 Paid \(\$ 170,000\) to purchase copyrights to a series of romantic novels. The copyrights expire in 40 years, although sales of the novels are expected to stop after 10 years. Mar. 1 Discovered a satellite dish antenna has been destroyed by lightning. The loss is covered by insurance and a claim is filed today. The antenna cost \(\$ 18,360\) when installed on July 1 , 2018 , and was being depreciated over 12 years with a \(\$ 1,800\) salvage value. Straight-line depreciation was last recorded on December 31,2018 . Global expects to receive an insurance settlement of \(\$ 17,000\). April 1 Paid \(\$ 140,000\) to remodel space to create an employee exercise area on the lower level in a leased building. The building's remaining useful life is 40 years; the lease on the building expires in 12 years. July 1 Paid \(\$ 540,000\) to acquire a patent on a new publishing process. The patent has a remaining legal life of 15 years. Global estimates the new process will be utilized for 6 years before it becomes obsolete. Nov. I Paid \(\$ 180,000\) to obtain a four-year franchise to sell a new series of computerized do-it-yourself manuals. Required a. Prepare journal entries to record these transactions. b. Prepare the December 31 journal entries to record depreciation and amortization expense for assets acquired during the year. Global uses straight-line depreciation and amortization.

Which of the following statements is true? a. Intangible assets are shown on the balance sheet net of the Accumulated Amortization account. b. Goodwill is shown on the balance sheet net of the Accumulated Amortization account. \(c\). The Accumulated Depreciation account need not be used for plant assets. d. Plant assets are shown on the balance sheet net of the Accumulated Depreciation account.

How is the asset turnover ratio calculated? What does this ratio reveal about a business?

Revision of Depreciation and Capital Expenditure Pinecrest Company uses straight-line depreciation in accounting for its machines. On January 2, 2013, Pinecrest purchased a new machine for \(\$ 258,000\) cash. The machine's estimated useful life was seven years with a \(\$ 20,000\) salvage value. In 2018 , the company decided its original useful life estimate should be increased by three years. Beginning in 2018, depreciation was based on a 10-year total useful life, and no change was made in the salvage value estimate. On January 3, 2019, Pinecrest added an automatic cut-off switch and a self-sharpening blade mechanism to the machine at a cost of \(\$ 9,200\) cash. These improvements did not change the machine's useful life but did increase the estimated salvage value to \(\$ 11,200\). Required a. Prepare journal entries to record (1) the purchase of the machine, (2) 2013 depreciation expense, (3) 2018 depreciation expense, (4) the 2019 improvements, and (5) 2019 depreciation expense. b. Calculate the book value of the machine at the end of 2019 (that is, after recording the depreciation expense for 2019).

Return on Assets The Queen Company reported net income of \(\$ 80,000\) and average total assets of \(\$ 450,000\). Calculate the company's return on assets.
See all solutions

Recommended explanations on Math Textbooks

Calculus

Read Explanation

Applied Mathematics

Read Explanation

Theoretical and Mathematical Physics

Read Explanation

Pure Maths

Read Explanation

Statistics

Read Explanation

Discrete Mathematics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.