The Asset Section of the January 1, 20X7 Balance Sheet

question 54

Multiple Choice

The asset section of the January 1, 20X7 balance sheet of Murphy Company includes a machine, which was acquired on January 1, 20X1. The machine's original cost was $1,000,000, and the estimated life was determined to be 10 years. The estimated residual value was zero, and the straight-line method of depreciation was chosen.
-If operating income AFTER amortization is $160,000, the rate of return on average net book value for 19X1 is

• A) 6.3 percent.
• B) 32.0 percent.
• C) 16.8 percent.
• D) 16.0 percent.

---

Definitions:

Discontinuance

The cessation of a business operation or a business segment's activities.

Correct Error

The process of identifying and rectifying mistakes or inaccuracies in financial statements or records.

Overstatement

The exaggeration of financial performance or values in financial reporting, leading to misleadingly positive presentations.

Trading On The Equity

The practice of borrowing funds at a lower rate of interest to invest in assets that yield a higher rate of return, utilizing the leverage to increase equity returns.