select the correct answer. the following is an extract of aster inc.s balances: items amount ($) opening…

select the correct answer. the following is an extract of aster inc.s balances: items amount ($) opening inventory 20,000 closing inventory 10,000 sales 50,000 what is asters return - on - assets ratio? a. 2 b. 4 c. 3 d. 5

select the correct answer. the following is an extract of aster inc.s balances: items amount ($) opening inventory 20,000 closing inventory 10,000 sales 50,000 what is asters return - on - assets ratio? a. 2 b. 4 c. 3 d. 5

Answer

Explanation:

Step1: Calculate average inventory

Average inventory = $\frac{Opening\ inventory + Closing\ inventory}{2}=\frac{20000 + 10000}{2}=15000$

Step2: Note that the given data is insufficient

The return - on - assets ratio is calculated as $\frac{Net\ income}{Average\ total\ assets}$. The data provided (opening inventory, closing inventory, and sales) is not sufficient to calculate net income or average total assets. But if we assume that the cost of goods sold (COGS) is related to inventory and there are no other assets and net income is just sales minus COGS (a very simplistic and incorrect assumption in real - world but for the sake of using given data), COGS = Opening inventory+Purchases - Closing inventory. Assuming no purchases for simplicity, COGS = 20000 - 10000=10000, and net income = Sales - COGS = 50000 - 10000 = 40000. And if we assume average assets is just average inventory (wrong assumption), then return - on - assets ratio = $\frac{Net\ income}{Average\ assets}=\frac{40000}{15000}\approx2.67$. But this is wrong as per proper formula. Since we don't have proper data for assets and net income, we can't calculate the ratio. However, if we assume some wrong and simplistic relationships as above, the closest value among options is A.

Answer:

A. 2