The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2021. The fixed-asset turnover ratio for 2021 was 4.0, and sales for the year totaled $1,480,000. Net fixed assets at the end of 2020 were:

Net fixed assets at end of 2020 = $420,000

Explanation:

Fixed assets refer to long term assets which have useful economic life that is greater one year and they are primarily purchased not to be resold but to be used in the business activities of the company.

The net fixed asset is the purchase price of the fixed assets minus accumulated depreciation.

The asset turnover ratio refers to a ratio that is employed to assess the efficiency of the fixed assets of the company in generating sales revenue.

To compute the net fixed assets at the end of 2020 of Davidson Corporation, we use the formula for calculating the fixed-asset turnover ratio as follows:

Fixed-asset turnover ratio in 2021 = Sales in 2021 / Average net fixed asset ………… (1)

Where;

Fixed-asset turnover ratio = 4.0

Sales in 2021 = $1,480,000

Average net fixed asset = ?

Substituting the values into equation (1) and solve for Average net fixed asset, we have:

4.0 = $1,480,000 / Average net fixed asset

Average net fixed asset = $1,480,000 / 4

Average net fixed asset = $370,000

Since;

Average net fixed asset = (Net fixed assets at end of 2021 + Net fixed assets at end of 2020) / 2 … (2)

Substituting the values into equation (2) and solve Net fixed assets at end of 2020, we have:

$370,000 = ($320,000 + Net fixed assets at end of 2020) / 2

$370,000 * 2 = $320,000 + Net fixed assets at end of 2020

$740,000 = $320,000 + Net fixed assets at end of 2020

$740,000 - $320,000 = Net fixed assets at end of 2020

Net fixed assets at end of 2020 = $420,000

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