10) Which of the following financial statements is used to report the economic resources, debt, and overall
financial position of a company?
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings
11) Which of the following financial statements is used to report cash receipts for services provided?
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
12) Which of the following financial statements would be most useful if an analyst wants to know the
likelihood of repayment of business debts?
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
13) Which of the following financial statements would be most useful if an analyst wants to know the
profitability of a company?
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
14) The return on assets is calculated by ________.
A) subtracting net income from average total assets
B) adding net income and average total assets
C) dividing net income by average total assets
D) multiplying net income and average total assets
15) Which of the following formulae is used to calculate average total assets for the return on assets ratio?
A) Average total assets = (Beginning total assets + Ending total assets) × 2
B) Average total assets = (Beginning total assets – Ending total assets) × 2
C) Average total assets = (Beginning total assets – Ending total assets) / 2
D) Average total assets = (Beginning total assets + Ending total assets) / 2
16) Assume Metro Corporation had a net income of $2,500 for the year ending December 2018. Its
beginning and ending total assets were $32,500 and $19,500, respectively. Calculate Metro‘s return on
assets (ROA). (Round your percentage answer to two decimal places.)
A) 7.69%
B) 12.82%
C) 9.62%
D) 4.81%
17) McAlister Repair Service had net income for the year of $125,000. In addition, the balance sheet
reports the following balances:
Jan. 1, 2018
Dec. 31, 2018
Accounts Receivable
$ 5,600
$ 14,200
Accounts Payable
12,000
9,500
Building
125,000
125,000
Cash
37,500
35,000
Office Furniture
25,000
50,000
Office Supplies
3,200
1,500
Notes Payable
60,000
75,000
Total Stockholders’ Equity
124,300
141,200
Calculate the return on assets (ROA) for McAlister Repair Service for the year ending December 31, 2018.
Accounts Receivable
Building
Cash
Office Furniture
Office Supplies
Total Assets
18) Adams Service Company had a net income of $14,500 for the year ending December 31, 2018. The
total assets on January 1, 2018 were $28,000. The total assets on December 31, 2018 were $16,000.
Calculate Adam’s return on assets (ROA). Show your computations and label your work. Round your
answer to two decimal places.
19) What is the calculation for return on assets (ROA)? What does ROA measure?
20) Selected information for Uptown Spa Services and Downtown Spa Services follows:
Uptown Spa
Services
Downtown Spa
Services
Total Assets
$125,000
Total Assets
$162,000
Total
Stockholders’
Equity
$90,000
Total
Stockholders’
Equity
$137,000
Total Revenues
$82,000
Total Revenues
$70,000
Net Income
$12,000
Net Income
$18,000
The total assets and total stockholders’ equity balances are at December 31, 2018. Total revenues and net
income are for the year ended December 31, 2018. No dividends were paid. Average net assets are
$128,000 for Uptown and $178,000 for Downtown.
Provide answers for the following questions. Show your work and explain your answer.
1. Which business owes more to creditors?
2. Which business has more stockholders’ equity at the end of the year?
3. Which business had more expenses?
4. What is the ROA for each business? (Show this as a percentage and round to one decimal place)
Based on ROA, which company is more profitable?