Question 1

The return on assets is equal to the:

Accepted Answer

The return on assets (ROA) is calculated by multiplying the profit margin by the asset turnover. This formula shows how efficiently a company is using its assets to generate profit.

Question 2

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.Net income and sales for the year are $100,000 and $800,000,respectively.What is Hidden Valley's profit margin?

Accepted Answer

Profit margin is calculated by dividing net income by total sales.
Profit Margin = Net Income / Total Sales
Profit Margin = $100,000 / $800,000
Profit Margin = 0.125 or 12.5%
Therefore, the answer is B) 12.5%.

Question 3

Cash received from the sale of salvaged materials increases the total cost of land.
Cash received from the sale of salvaged materials decreases the total cost of land.

Accepted Answer

Cash received from the sale of salvaged materials decreases the total cost of land, as it is considered as a reduction in the overall expense incurred for the acquisition of the land.

Question 4

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.Net income and sales for the year are $100,000 and $800,000,respectively.What is Hidden Valley's return on assets?

Accepted Answer

The answer of The balance sheet of Hidden Valley Farms...

Question 5

Land improvements are recorded separately from the land itself because,unlike land,these assets are subject to depreciation.

Accepted Answer

Land improvements, which may include things like paving, landscaping, or adding utilities, are considered depreciable assets and therefore are recorded separately from the land itself. Land, on the other hand, is not subject to depreciation because it is considered a non-depreciable asset.

Question 6

The return on assets is calculated as:

Accepted Answer

The return on assets (ROA) is a measure of how efficiently a company is using its assets to generate earnings. It is calculated by dividing net income by average total assets. This takes into account changes in assets throughout the year and provides a more accurate picture of the company's performance. Choice A is incorrect as it does not consider the changes in assets throughout the year. Choice C is incorrect as it only considers ending total assets, which may not represent the average level of assets for the year. Choice D is incorrect as it divides total assets by net income, which is not a relevant calculation for ROA.

Question 7

Oregon Adventures purchased equipment at the beginning of 2012 for $80,000.They sold the equipment at the end of 2014 for $45,000.If the expected life of the equipment was seven years with a residual value of $10,000,and they use straight-line depreciation,which of the following is true regarding the entry to record the sale of the equipment?

Accepted Answer

When sold, the equipment should have had accumulated depreciation of $40,000 (3 years of straight-line depreciation at $10,000 per year). The book value of the equipment would be $30,000 ($80,000 - $40,000 - $10,000). Since the equipment was sold for $45,000, there is a loss of $5,000 ($45,000 - $30,000). Therefore, the entry to record the sale of the equipment should debit Loss for $5,000.

Question 8

Leonard's Jewelry owns a patent with a carrying value of $50 million at the end of 2012.Due to adverse economic conditions,Leonard's management determined that it should assess whether an impairment should be recognized for the patent.The estimated future cash flows to be provided by the patent total $43 million,and its fair value at that point totals $35 million.Under these circumstances,Leonard:

Accepted Answer

The carrying value of the patent is $50 million, while its estimated future cash flows are only $43 million. Additionally, the fair value of the patent is only $35 million. This indicates that the patent has suffered an impairment, as its carrying value is greater than the sum of its estimated future cash flows and fair value. The impairment loss is calculated as the carrying value minus the fair value, or $50 million minus $35 million, which equals $15 million. Therefore, Leonard would record a $15 million impairment loss on the patent.

Question 9

Accounting for impairment losses:

Accepted Answer

Accounting for impairment losses involves a two-step process that includes assessing the recoverability of the asset and measuring the amount of the loss. This process applies to all types of assets, not just depreciable operational assets or assets with finite lives.

Question 10

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.Net income and sales for the year are $100,000 and $800,000,respectively.What is Hidden Valley's asset turnover?

Accepted Answer

Asset turnover is calculated as Sales divided by Average Total Assets. The average total assets are ($450,000 + $550,000) / 2 = $500,000. Therefore, the asset turnover is $800,000 / $500,000 = 1.6 times.

Question 11

Wilson Inc.owns equipment for which it paid $70 million.At the end of 2012,it had accumulated depreciation on the equipment of $12 million.Due to adverse economic conditions,Wilson's management determined that it should assess whether an impairment should be recognized for the equipment.The estimated future cash flows to be provided by the equipment total $60 million,and its fair value at that point totals $50 million.Under these circumstances,Wilson:

Accepted Answer

The answer of Wilson Inc.owns equipment for which it paid...

Question 12

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.The return on assets for the year is 10%.What is Hidden Valley's net income for the year?

Accepted Answer

The formula for calculating net income is:

Net Income = Return on Assets x Average Total Assets

We are given the Return on Assets (10%) and the Average Total Assets, which can be calculated as:

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Average Total Assets = ($450,000 + $550,000) / 2
Average Total Assets = $500,000

Substituting these values into the formula, we get:

Net Income = 10% x $500,000
Net Income = $50,000

Therefore, the net income for the year is $50,000, which is option D.

Question 13

We use the term capitalize to describe recording an expenditure as an expense.
We use the term capitalize to describe recording an expenditure as an asset.

Accepted Answer

Capitalizing refers to recording an expenditure as an asset, not as an expense.

Question 14

Recognition of impairment for long-term assets is required if book value exceeds:

Accepted Answer

The answer of Recognition of impairment for long-term assets is...

Question 15

We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.
We record a long-term asset at its cost plus all expenditures necessary to get the asset ready for use.

Accepted Answer

We record a long-term asset at its cost plus all expenditures necessary to get the asset ready for use, not less.

Question 16

In testing for recoverability of an operational asset,an impairment loss is required if the:

Accepted Answer

An impairment loss is recognized when the carrying amount (book value) of an asset exceeds the expected future cash flows (undiscounted) from the asset.

Question 17

Maple Inc.has the following information regarding its assets: What amount of loss should be recorded due to asset impairments?

Accepted Answer

Only the equipment is impaired and the impairment loss is calculated as the difference between the book value and the fair value (35,000 - $28,000)= $7,000. Therefore, option D is the correct choice.

Question 18

The amount of impairment loss is the excess of book value over:

Accepted Answer

According to accounting standards, an impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell or its value in use. Therefore, the amount of impairment loss is the excess of book value over the asset's fair value.

Question 19

C-Stop reports the following information at year-end: Based on the above information,what is the total amount of impairment loss that C-Stop should record at year end?

Accepted Answer

The building and the copyright are impaired since their estimated future cash flows are less than book value. The impairment loss is calculated as the difference between the book value and the fair value: Building ($500,000 - $360,000) = $140,000 and Copyright (40,000 - $39,000) = $1,000. Total impairment loss ($140,000 + $1,000) = $141,000. Therefore, the correct choice is A.

Question 20

The CEO,as head of the company,is ultimately responsible for the firm's accounting.

Accepted Answer

The CEO is the top executive of a company and has overall responsibility for the organization's performance. This includes financial performance, and therefore the CEO is ultimately responsible for the firm's accounting.

Quiz 7: Long-Term Assets