Question 1

A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $35,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:

Accepted Answer

The answer of A company purchased property for $100,000. The...

Question 2

The formula to compute annual straight-line depreciation is:

Accepted Answer

Straight-line depreciation calculates the same amount of depreciation expense for each year of an asset's useful life. The formula for annual straight-line depreciation is (Cost minus salvage value) divided by the useful life in years.

Question 3

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

Accepted Answer

Straight-line depreciation charges equal amounts of depreciation expense each year over the useful life of the asset. This method is simple and widely used, especially for financial reporting purposes.

Question 4

Spears Co. had net sales of $35,400 million. Its average total assets for the period were $14,700 million. Spears' total asset turnover equals:

Accepted Answer

The answer of Spears Co. had net sales of $35,400...

Question 5

The total cost of an asset less its accumulated depreciation is called:

Accepted Answer

The book value of an asset is the total cost of the asset less its accumulated depreciation. This represents the net value of the asset on the company's balance sheet. The other options do not accurately represent the net value of the asset. A) Current value represents the current market value of the asset, which may or may not be the same as its book value. B) Present value represents the value of future cash flows discounted at a present interest rate, which is not directly related to an asset's book value. D) Replacement cost represents the cost of replacing the asset with an identical or similar asset, which is not the same as the asset's book value. E) Historical cost represents the original cost of the asset when it was acquired, which does not reflect any changes in value due to depreciation.

Question 6

The modified accelerated cost recovery system (MACRS):

Accepted Answer

The modified accelerated cost recovery system (MACRS) is a depreciation method included in the U.S. federal income tax rules for depreciating assets. It provides a shorter recovery period for most tangible property than the previous system and allows for partial year depreciation.

Question 7

A company had average total assets of $887,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company's total asset turnover equals:

Accepted Answer

Total Asset Turnover = Net Sales / Average Total Assets
= $1,000,000 / $887,000
= 1.13. Therefore, the answer is choice C.

Question 8

Merchant Company purchased property for a building site. The costs associated with the property were: $\begin{array} { l  }
 \text { Purchase price}&\$185,000 \
 \text {Real estate commissions }& 15,000\
 \text {Legal fees }&700 \
 \text {Expenses of clearing the land }&2,000 \
 \text { Expenses to remove old building}&4,000 \
\end{array}$
 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Accepted Answer

The answer of Merchant Company purchased property for a building...

Question 9

The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:

Accepted Answer

Units-of-production depreciation is the method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced. This method is based on the assumption that the wear and tear on a plant asset is directly related to the number of units it produces. Therefore, the more units produced, the more depreciation expense is recognized.

Question 10

Land improvements are:

Accepted Answer

Land improvements are assets that add value or usefulness to land, such as the addition of sidewalks, parking lots, or fences. However, they have a limited useful life and are subject to depreciation. Therefore, they are classified as a separate asset and are depreciated over their useful life.

Question 11

The calculation of total asset turnover is:

Accepted Answer

Total asset turnover is calculated by dividing net sales by average total assets. This ratio measures how efficiently a company uses its assets to generate sales revenue.

Question 12

Which of the following is not classified as plant assets?

Accepted Answer

Patents are intangible assets, not plant assets.

Question 13

The straight-line depreciation method and the double-declining-balance depreciation method:

Accepted Answer

The straight-line depreciation method and the double-declining-balance depreciation method do not produce the same depreciation expense each year, but they do produce the same total depreciation over an asset's useful life. This is because the straight-line method depreciates the asset evenly over its useful life, while the double-declining-balance method depreciates the asset more heavily in the early years and less heavily in the later years. However, the total depreciation under both methods will be equal over the asset's useful life.

Question 14

A benefit of using an accelerated depreciation method is that:

Accepted Answer

Using an accelerated depreciation method yields larger depreciation expense in the early years of an asset's life. This means a company can write off the cost of the asset more quickly, which results in lower taxable income in those years. However, it also means that the depreciation expense will be lower in the later years of the asset's useful life.

Question 15

Total asset turnover is used to evaluate:

Accepted Answer

Total asset turnover is a ratio used to measure how efficiently a company uses its assets to generate sales. It is calculated by dividing the company's total revenue by its total assets. A high total asset turnover ratio indicates that the company is efficiently using its assets to generate sales, while a low ratio indicates that the company may be inefficiently using its assets. Therefore, option B is the correct answer.

Question 16

The cost of land would not include:

Accepted Answer

The cost of land would not include the cost of parking lot lighting as it is considered a separate expense and not included in the direct cost of acquiring land.

Question 17

A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records?

Accepted Answer

The answer of A company paid $150,000, plus a 7%...

Question 18

The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called:

Accepted Answer

The answer of The depreciation method in which a plant...

Question 19

The following information is available on a depreciable asset owned by Mutual Savings Bank: $$\begin{array} { | l | l | } 
\hline \text { Purchase date } & \text { July } 1 , \text { Year } 1 \
\hline \text { Purchase price } & \$ 85,000 \
\hline \text { Salvage value } & \$ 10,000 \
\hline \text { Useful life } & 10 \text { years } \
\hline \text { Depreciation method } & \text { straight-line } \
\hline
\end{array}$$ The asset's book value is $70,000 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

Accepted Answer

The revised annual depreciation is calculated by adjusting the salvage value and remaining useful life. The new annual depreciation is $8,125, and for six months, it is $4,062.50.

Question 20

A total asset turnover ratio of 3.5 indicates that:

Accepted Answer

A total asset turnover ratio of 3.5 means that for every $1 in assets, the firm produced $3.50 in net sales during the period. This ratio measures the efficiency of a company in generating sales from its assets. It is calculated by dividing the net sales by the total assets. The higher the ratio, the more efficiently the company is utilizing its assets to generate revenue.

Quiz 10: Plant Assets, Natural Resoures, and Intangibles