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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Ratio of sales to assets

Financial statement data for years ending December 31 for Edison Company follows:

Chapter 6, Problem 6.7BPE, Ratio of sales to assets Financial statement data for years ending December 31 for Edison Company

a. Determine the ratio of sales to assets for 2016 and 2015.

b. Does the change in the ratio of sales to assets from 2015 to 2016 indicate a favorable or an unfavorable trend?

a.

To determine

Asset turnover ratio is used to determine the efficiency of the company towards use of asset towards generation of sales. The formula to calculate asset turnover is given below:

Assetturnover=NetrevenueAverage total assets

The asset turnover for 2016 and 2015 for Company E.

Explanation

Working Notes:

Calculate the average total assets.

Beginning assets = $770,000

Ending assets = $800,000

Averagetotalassets=Beginningassets+Endingassets2=$770,000+$800,0002=$785,000 (1)

Calculate the asset turnover for 2015.

Sales/ net revenue = $1,568,000

Average total assets = $710,000 (2)

Assetturnover=NetrevenueAverage�

b.

To determine

To Comment: Whether the change in the asset turnover from 2015 to 2016 indicate a favorable or an unfavorable trend.

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