The question asks:
“Ignoring the impact of any accounting change, the asset turnover ratio for Colorful Concepts excluding the investments in associates would:”…
I thought the asset turnover ratio would stay the same since it is an investment in associate and using the equity method. Wouldn’t rev and assets be the same?
The question specifically mentions “the company has a 204 ending asset balance (188 beginning) for investments in associates, primarily due to its 20 percent interest in the equity of Exotic Imports”
This is the correct answer, I get the math but not the logic behind it (why would they have made the adjustment in the first place?):
"B is correct. The asset turnover ratio (sales/average total assets) without adjustment is 7,049/3,844 = 1.83. To compute the asset turnover ratio excluding investments in associates, the average investment in associates [(204 + 188)/2 = 196] is deducted from average total assets. The adjusted asset turnover ratio is 7,049/(3,844 – 196) = 1.93. The asset turnover ratio increased by 0.10."