Last Year Kruse Corp Had $305,000 of Assets, $403,000 of Sales

question 100

Multiple Choice

Last year Kruse Corp had $305,000 of assets, $403,000 of sales, $28,250 of net income, and a debt-to-total-assets ratio of 39%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $252,500. Sales, costs, and net income would not be affected, and the firm would maintain the same debt ratio (but with less total debt) . By how much would the reduction in assets improve the ROE?

• A) 2.85%
• B) 3.00%
• C) 3.16%
• D) 3.31%
• E) 3.48%

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Definitions:

GAAP

Generally Accepted Accounting Principles, which are a set of accounting standards and principles used in the United States.

Successful-Efforts Method

An accounting approach used in the oil and gas industry where costs are capitalized only if they lead to successful finding of new oil or gas reserves.

Drilling

The process of creating holes in the earth's surface in preparation for the exploration or extraction of resources, such as oil and gas.

Oil Wells

Structures drilled into the earth for the purpose of extracting petroleum and other hydrocarbons.