Exhibit 11-5
Sports Products Inc To Calculate Economic Value Added (EVA),management Requires Adjustments for Marketing

Multiple Choice

Exhibit 11-5
Sports Products Inc.sells skis and snowboards.Below is some financial information for each division at Sports Products for the most recent fiscal year.
$\begin{array}{lrr}&\text { Skis } & \text { Snowboards } \\&\text { Division } & \text { Division } \\\text { Income Statement Information }\\\text { Marketing expenses } & \$ 200,000 & \$ 150,000 \\\text { Operating income } & 750,000 & 600,000 \\\text { Income tax expense (30\% tax rate) } & 225,000 & 180,000\\\\\text { Balance Sheet Information }\\\text { Average operating assets }&\$ 1,100,000 & \$ 525,000 \\\text { Non-interest bearing current liabilities }& 100,000 & 75,000\\\\\text { Percent cast of capital }&18\%&18\%\end{array}$ To calculate economic value added (EVA) ,management requires adjustments for marketing and non-interest bearing current liabilities as outlined below.
Marketing will be capitalized and amortized over several years resulting in an increase to average operating assets of $125,000 for the Skis division and $82,500 for the Snowboards division.On the income statement,marketing expenses for the year will be added back to operating income,then marketing amortization expense for one year will be deducted.The current year amortization expense will total $60,000 for the Ski division and $45,000 for the Snowboards division.
Non-interest bearing liabilities will be deducted from average operating assets.
-Refer to Exhibit 11-5.After the EVA adjustments to average operating assets,what would be the amount of average operating assets (adjusted) for the Skis Division?

A) $1,000,000
B) $1,200,000
C) $1,125,000
D) $1,060,000
E) None of the answer choices is correct.