ACC-240 Topic 2-Class 1

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Grand Canyon University *

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240

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Accounting

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Feb 20, 2024

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ACC 240 Fundamentals of Accounting Topic 2-Assignments and Practice Quiz Questions—Class 1 Assignments Problem 1 An investor has accumulated $9,000 and is looking for the best rate of return that can be earned over the next year. A bank savings account will pay 6% interest. A one-year bank certificate of deposit will pay 8% interest, but the minimum investment is $12,000. Required : a. Calculate the amount of return the investor would earn if the $9,000 were invested for one year at 6%. a. Investment * interest rate = ROI b. 9,000 * 0.06 =540 interest earned b. Calculate the net amount of return the investor would earn if $3,000 were borrowed at a cost of 16%, and then the $12,000 were invested for one year at 8%. a. 12,000 * 0.08 = 960 gross interest earned b. 3,000 * .16 = (480) cost of borrowing c. 960 – 480 = 480 net intertest earned c. Calculate the net rate of return on the investment of $9,000 if the investor accepts the strategy of part b. a. Net interest earned / investment = ROI b. 480 / 9,000 = 5.33% Problem 2 Required : a. Firm D has net income of $70,000, sales of $1,350,000, and average total assets of $824,000. Calculate the firm’s margin, turnover, and ROI. a. (70,000 / 824,000) = (70,000 / 1,350,000) * (1,350,000 / 824,000) b. 8.05 % = 5.19% * 1.64 times b. Firm E has net income of $138,000, sales of $2,300,000, and a ROI of 15.6%. Calculate the firm’s turnover and average total assets. a. (138,000 / ? ) = (138,000 / 2,300,000) * (2,300,000 / ? ) b. ROI = 15.6%  138,000 / 0.156 = $884,615.38 = average total assets c. (138,000 / 884,615.38 ) = (138,000 / 2,300,000) * (2,300,000 / 884,615.38 ) d. 15.6 % = 6% * 2.6 times=turnover c. Firm F has a 12.6% ROI, average total assets of $1,815,500, and a 1.6 turnover. Calculate the firm’s sales, margin, net income. a. ROI (12.6%) = ? * 1.6 times b. ( ? / 1,815,500) = ( ? / ? ) * ( ? / 1,815,500) c. 1,815,000 * 0.126 = 228,753 = net income d. 1,815,500 * 1.6 = 2,904,800 = firm’s sales e. Net income / sales = margin i. 228,753 / 2,904,800 = 7.875% 1

Practice Quiz Questions 1. Which of the following is a universally accepted measure of profitability? a. Return on revenues. b. Return on liabilities. c. Return on retained earnings. d. Return on investment. 2. Another term for return on investment is a. Return on equity. b. Return to sender. c. Return on assets. d. Return on retained earnings. 3. When comparing financial ratios with industry ratios a. It should be assumed that the data result from the consistent application of alternative accounting methods. b. Relative values at a single point in time may not be significant. c. The trend of company ratios should be compared to the current year’s industry ratio. d. Company ratios should not be compared with industry ratios. 4. An advantage of the DuPont model for calculation ROI is that a. It uses average assets and the straightforward ROI formula does not. Both will b. It uses average stockholders’ equity. c. It focuses on asset utilization as well as net income. d. It is easier to use than the straightforward ROI formula. 2

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