Question 1

When a company constructs a building,the cost of the building includes materials and labor but not design fees,building permits,or insurance during construction.

Accepted Answer

The cost of the building includes materials, labor, design fees, building permits, insurance during construction, and other related expenses.

Question 2

Total asset turnover is calculated by dividing average total assets by net sales.

Accepted Answer

Total asset turnover is calculated by dividing net sales by average total assets.

Question 3

The Modified Accelerated Cost Recovery System (MACRS)is part of the U.S.federal income tax laws and may be used for financial reporting.

Accepted Answer

MACRS is used for tax purposes to determine depreciation deductions for assets, but for financial reporting, companies typically use different depreciation methods that comply with Generally Accepted Accounting Principles (GAAP).

Question 4

Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

Accepted Answer

Capital-intensive companies require a significant amount of capital investment in assets to generate their revenue or sales. These assets could include heavy machinery, manufacturing equipment, real estate, and other fixed assets.

Question 5

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Accepted Answer

The units-of-production method of depreciation is a variable depreciation method where the amount of expense charged each period is based on the asset's usage, typically measured in units produced or hours used. Therefore, the statement is true.

Question 6

The straight-line depreciation method yields a steady pattern of depreciation expense.

Accepted Answer

The straight-line depreciation method evenly depreciates an asset over its useful life, resulting in a steady pattern of depreciation expenses each year.

Question 7

An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

Accepted Answer

This is because an accelerated depreciation method like the double declining balance or sum-of-the-years-digits method allocates a higher percentage of an asset's cost to depreciation in the early years, and a lower percentage in later years. This results in larger depreciation expense in the early years and less in later years.

Question 8

A company purchased a plant asset for $60,000.The asset has an estimated salvage value of $4,000,and an estimated useful life of 7 years.The annual depreciation expense using the straight-line method is $4,000 per year.

Accepted Answer

Depreciation Expense = (Cost - Salvage Value)/Estimated Useful Life Depreciation Expense = ($60,000 - $4,000)/7; Depreciation Expense = $8,000

Question 9

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate, (2)doubling it, (3)subtracting salvage value from cost,and (4)multiplying the rate times the net value.

Accepted Answer

The steps for applying the double-declining balance method are correct, but the method involves multiplying the depreciation rate times twice the straight-line rate, not just doubling it.

Question 10

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Accepted Answer

The answer of The cost of fees for insuring the...

Question 11

Edmond reported average total assets of $9,965 million and net sales of $10,430 million.Its total asset turnover equals .96.

Accepted Answer

Total Asset Turnover = Net Sales/Average Total Assets Total Asset Turnover = $10,430/$9,965 = 1.05

Question 12

Asset turnover is computed by dividing net sales by average total assets.

Accepted Answer

This statement is true. Asset turnover is a financial ratio that measures a company's ability to generate revenue from its assets. It is calculated by dividing the net sales (revenue) by the average total assets, and is often used to assess a company's efficiency in utilizing its assets to generate sales.

Question 13

Duncan reported net sales of $2,523 million and average total assets of $1,476 million.Its total asset turnover equals 1.71.

Accepted Answer

Total Asset Turnover = Net Sales/Average Total Assets Total Asset Turnover = $2,523/$1,476 = 1.71

Question 14

If a machine is damaged during unpacking,the repairs are added to its cost.

Accepted Answer

The answer of If a machine is damaged during unpacking,the...

Question 15

Total asset turnover is calculated by dividing net sales by average total assets.

Accepted Answer

True, total asset turnover is calculated by dividing net sales by average total assets. It is a ratio that measures a company's efficiency in using its assets to generate revenue.

Question 16

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

Accepted Answer

This statement is true. The ability of a company to efficiently use its assets to generate revenues is a key indicator of its financial health and performance. This is often evaluated through ratios such as asset turnover and return on assets.

Question 17

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Accepted Answer

This is known as the cost principle in accounting.

Question 18

Additions to land that increase the usefulness of the land such as parking lots,fences,and lighting are not depreciated.

Accepted Answer

Additions to land that increase its usefulness, such as parking lots, fences, and lighting, are considered improvements and are subject to depreciation, unlike the land itself which is not depreciated.

Question 19

The purchase of a property that included land,building,and related improvements is called a lump-sum or basket purchase.

Accepted Answer

The purchase of a property that includes land, building, and related improvements is referred to as a lump-sum or basket purchase.

Question 20

Total asset cost plus depreciation expense equals book value.

Accepted Answer

Book value is calculated by taking the total asset cost and subtracting the accumulated depreciation, not adding it.

Quiz 8: Accounting for Long-Term Assets

When a company constructs a building,the cost of the building includes materials and labor but not design fees,building permits,or insurance during construction.

Total asset turnover is calculated by dividing average total assets by net sales.

The Modified Accelerated Cost Recovery System (MACRS)is part of the U.S.federal income tax laws and may be used for financial reporting.

Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

The straight-line depreciation method yields a steady pattern of depreciation expense.

An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

A company purchased a plant asset for $60,000.The asset has an estimated salvage value of $4,000,and an estimated useful life of 7 years.The annual depreciation expense using the straight-line method is $4,000 per year.

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate, (2)doubling it, (3)subtracting salvage value from cost,and (4)multiplying the rate times the net value.

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Edmond reported average total assets of $9,965 million and net sales of $10,430 million.Its total asset turnover equals .96.

Asset turnover is computed by dividing net sales by average total assets.

Duncan reported net sales of $2,523 million and average total assets of $1,476 million.Its total asset turnover equals 1.71.

If a machine is damaged during unpacking,the repairs are added to its cost.

Total asset turnover is calculated by dividing net sales by average total assets.

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Additions to land that increase the usefulness of the land such as parking lots,fences,and lighting are not depreciated.

The purchase of a property that included land,building,and related improvements is called a lump-sum or basket purchase.

Total asset cost plus depreciation expense equals book value.