Question 1

Fireworks City
Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. 
-Refer to Fireworks City. Determine the asset turnover ratio for 2020.
A)7.84 times
B)1.60 times
C)4.00 times
D)4.55 times

Accepted Answer

The asset turnover ratio is calculated by dividing net sales by average total assets. For 2020, net sales were $1,230,000 and average total assets were $157,000. Therefore, the asset turnover ratio is $1,230,000 / $157,000 = 7.84 times.

Question 2

Depreciation is
A)an effort to achieve proper matching of the cost of operating assets with related revenues.
B)an accumulation of funds to replace the related plant asset.
C)the difference between the original cost and salvage value of an asset.
D)the cash allocated each period to maintain a plant asset.

Accepted Answer

Depreciation is a method of allocating the cost of the asset over its useful life in a systematic and rational manner to achieve proper matching of the cost of operating assets with related revenues. Depreciation is not an accumulation of funds to replace the related plant asset, the difference between the original cost and salvage value of an asset, or the cash allocated each period to maintain a plant asset.

Question 3

Fireworks City
Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. 
-Refer to Fireworks City. Using the data for 2020, determine the average life of the company's property, plant, and equipment rounded to one decimal place.
A)1.6 years
B)2.5 years
C)4.0 years
D)10.0 years

Accepted Answer

The average life of property, plant, and equipment can be calculated by dividing the total depreciable cost by the annual depreciation expense. From the given data, the total depreciable cost for 2019 and 2020 is $725,000 + $785,000 = $1,510,000. The annual depreciation expense for 2020 is $377,500. Therefore, the average life of property, plant, and equipment is $1,510,000 / $377,500 = 4 years rounded to one decimal place. So, the correct choice is C.

Question 4

Land is not depreciated because it
A)appreciates in value.
B)does not have an established depreciable life.
C)has a useful life that is limited to the period of time a company is in business
D)will provide future benefits for a company for an unlimited period of time.

Accepted Answer

The answer of Land is not depreciated because it
A)appreciates in...

Question 5

A company uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of this company's assets?
A)double-declining-balance
B)revenue expenditure method
C)straight-line
D)units-of-production

Accepted Answer

The double-declining-balance method is an accelerated depreciation method that assigns more depreciation expense to the early years of an asset's life, reflecting rapid obsolescence and physical deterioration. This method is most appropriate for assets that lose value quickly, such as technology or machinery.

Question 6

Fireworks City
Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. 
-Refer to Fireworks City. Using the data for 2020, determine the average age of the company's property, plant, and equipment.
A)1.60 years
B)2.50 years
C)4.00 years
D)10.00 years

Accepted Answer

The average age of the company's property, plant, and equipment is calculated by dividing the net property, plant, and equipment by the depreciation and amortization expense. For 2020, the net property, plant, and equipment is $10,000,000 and the depreciation and amortization expense is $2,500,000. Therefore, the average age of the company's property, plant, and equipment is $10,000,000 / $2,500,000 = 4.00 years.

Question 7

Fernbank Farms
​
This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms. When calculating depreciation for 2021, the company's accountant should
A)add the $30,000 to the book value at December 31, 2020, and then allocate the revised depreciation basis over the remaining adjusted useful life of 5 years.
B)report the effect of the change in life as an expense on the income statement in 2019.
C)ignore the change in life on the original cost of $100,000 and depreciate the additional $30,000 cost separately over its useful life.
D)expense the $30,000 and depreciate the original cost of $100,000 over its revised estimated total live of 7 years.

Accepted Answer

The company should add the $30,000 to the book value at December 31, 2020, and then allocate the revised depreciation basis over the remaining adjusted useful life of 5 years. This is because the major repairs extended the life of the truck, which means the depreciation basis needs to be adjusted to reflect the new remaining useful life and salvage value. The straight-line method is used, so the annual depreciation will be the total revised depreciation basis divided by the remaining adjusted useful life. Option B is incorrect because the change in life occurred in 2021, not 2019. Option C is incorrect because the total cost of the truck, including the repairs, should be depreciated together over the adjusted useful life. Option D is incorrect because the original estimated life was 5 years, and the change occurred in 2021, which means the remaining adjusted useful life is 5 years, not 7 years.

Question 8

Fernbank Farms
​
This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms. What is the truck's book value at December 31, 2021?
A)$68,000
B)$98,000
C)$80,000
D)$62,000

Accepted Answer

- Annual depreciation = (Cost - Residual value) / Useful life
- Annual depreciation = ($100,000 - $20,000) / 5 = $16,000
- Depreciation expense for 2021 = $16,000
- Accumulated depreciation as of December 31, 2021 = Depreciation expense x number of years of use
- Accumulated depreciation as of December 31, 2021 = $16,000 x 3 = $48,000
- Book value as of December 31, 2021 = Cost - Accumulated depreciation - Major repairs
- Book value as of December 31, 2021 = $100,000 - $48,000 - $30,000 + $8,000
- Book value as of December 31, 2021 = $30,000

Question 9

Depreciation is a process by which
A)replacement funds are accumulated for plant and equipment.
B)the decline in market value of plant and equipment is determined and recorded.
C)the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.
D)the difference between current market value and historical cost of plant and equipment.

Accepted Answer

Depreciation involves the allocation of the cost of plant and equipment over the time periods in which they are expected to be used or provide benefit to the company. It does not involve accumulation of replacement funds or determination of market value. The difference between current market value and historical cost is called revaluation and is not a part of the depreciation process.

Question 10

Fireworks City
Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. 
-Refer to Fireworks City. During the year, the company sold some equipment that had an original cost of $60,000. Which statement is true concerning transactions that must have occurred during the period?
A)The company purchased additional equipment during the year.
B)The selling price of the equipment sold was reported with net sales.
C)The company did not purchase additional equipment during the year.
D)The equipment sold had not been reported with the company's property, plant and equipment.

Accepted Answer

The sale of equipment does not directly indicate whether new equipment was purchased or not. However, companies often replace old equipment to maintain or enhance operational capacity, suggesting that the purchase of additional equipment is a common practice.

Question 11

Fernbank Farms
​
This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms. What amount should be recorded as depreciation expense each year starting in 2021?
A)$16,000
B)$18,000
C)$13,600
D)$12,400

Accepted Answer

The answer of Fernbank Farms
​
This company purchased a semi truck...

Question 12

Which of the following sets of factors is needed to calculate depreciation on plant and equipment?
A)the asset's acquisition cost, replacement cost, and its estimated residual value
B)the estimated residual value of the asset, its replacement cost, and its market value
C)the asset's replacement cost, its estimated life, and its estimated residual value
D)the estimated life of the asset, its acquisition cost, and its estimated residual value

Accepted Answer

To calculate depreciation on plant and equipment, the essential factors include the asset's acquisition cost (initial cost), its estimated life (how long it is expected to be useful), and its estimated residual value (the value at the end of its useful life). These elements are used in various depreciation methods to allocate the cost of the asset over its useful life.

Question 13

Which statement is true concerning operating assets?
A)Operating assets have no physical properties.
B)A company's operating assets are important to its short-term liquidity.
C)Operating assets are used over two or more periods to generate revenues.
D)All operating assets are reported on the income statement

Accepted Answer

Operating assets are utilized over multiple periods to generate revenue, distinguishing them from current assets, which are more closely tied to short-term liquidity. Operating assets can have physical properties (like buildings and machinery) and include both tangible and intangible assets used in the operations of a business to generate income. They are reported on the balance sheet, not the income statement.

Question 14

Research and development costs are
A)treated as an expense when incurred.
B)capitalized but not amortized.
C)capitalized and amortized over the periods that will probably benefit from the research and development.
D)included with the cost of the patent resulting from the research and development.

Accepted Answer

Research and development costs are expensed as incurred according to most accounting standards, including International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) in the United States. This treatment reflects the uncertainty of future economic benefits from the research and development activities.

Question 15

If a company's asset turnover ratio decreased from 2019 to 2020, which of the following conclusions can be made?
A)The company was more efficient during 2020 in using its assets to produce profits.
B)The company produced less sales in 2020 for each dollar invested in assets.
C)The company was less profitable in 2019.
D)The company over invested in assets in 2020.

Accepted Answer

A decrease in asset turnover ratio means that the company generated less sales in the given period for each dollar invested in assets. This implies that the company was less efficient in utilizing its assets to generate revenues during the period.

Question 16

On January 1 (the beginning of the year), a company sold a piece of equipment for $30,000 which it had used for several years. The equipment had cost $45,000, and its accumulated depreciation amounted to $20,000 at the time of the sale. What are the net effects on the accounting equation of selling the equipment for the year?
A)Assets and Shareholders' Equity increase $30,000
B)Assets decrease and Shareholders' Equity increases $5,000.
C)Assets and Shareholders' Equity increase $5,000.
D)Assets and Shareholders' Equity decrease $5,000.

Accepted Answer

The sale of the equipment for $30,000, when its book value was $25,000 ($45,000 cost - $20,000 accumulated depreciation), results in a gain of $5,000. This increases both assets (due to the cash received) and shareholders' equity (due to the gain) by $5,000.

Question 17

Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method?
A)physical deterioration
B)obsolescence
C)repair and maintenance policies
D)current replacement cost

Accepted Answer

Current replacement cost is not related to the decline in the usefulness of plant and equipment assets. Depreciation methods focus on allocating the cost of an asset over its useful life, considering factors like physical deterioration, obsolescence, and repair/maintenance policies, but not the current replacement cost of the asset.

Question 18

Flying High Air acquires a new aircraft. It has an estimated life of 10 years and should last for at least 20,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?
A)double-declining-balance
B)revenue expenditure method
C)straight-line
D)units-of-production

Accepted Answer

The units-of-production method is most appropriate for the aircraft as it depreciates the asset based on its usage (in this case, hours of flight), which directly correlates with the generation of revenue, thus properly matching revenues and expenses.

Question 19

Assets classified as property, plant, and equipment are reported at
A)each asset's estimated market value at the balance sheet date less depreciation.
B)each asset's estimated market value at the balance sheet date.
C)the estimated salvage value at the balance sheet date.
D)each asset's original cost less depreciation since acquisition.

Accepted Answer

Property, plant, and equipment are reported on the balance sheet at their original cost less accumulated depreciation since acquisition. This is in accordance with the historical cost principle, which requires that assets be recorded at their original cost at the time of acquisition. The estimated market value or salvage value may be used to calculate the depreciation expense, but they are not used to report the value of the assets on the balance sheet.

Question 20

A company should choose a depreciation method that
A)best allocates the original cost of the asset to the periods benefited by the use of the asset.
B)saves the most taxes.
C)minimizes net income
D)shows the highest amount of net income.

Accepted Answer

The purpose of depreciation is to allocate the cost of an asset over the period of its useful life. The best method is the one that accurately reflects the use of the asset and the pattern of its benefits over time. This method should be consistent with the company's revenue recognition policies and financial statements. It may not necessarily save taxes or minimize net income, but it will provide a more accurate portrayal of the asset's value and usage over time.

Quiz 7: Operating Assets

Fireworks City Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. -Refer to Fireworks City. Determine the asset turnover ratio for 2020.

Depreciation is

Fireworks City Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. -Refer to Fireworks City. Using the data for 2020, determine the average life of the company's property, plant, and equipment rounded to one decimal place.

Land is not depreciated because it

A company uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of this company's assets?

Fireworks City Information for 2020 and 2019 is presented below for this company which uses the straight-line depreciation method. -Refer to Fireworks City. Using the data for 2020, determine the average age of the company's property, plant, and equipment.

Depreciation is a process by which

Which of the following sets of factors is needed to calculate depreciation on plant and equipment?

Which statement is true concerning operating assets?

Research and development costs are

If a company's asset turnover ratio decreased from 2019 to 2020, which of the following conclusions can be made?

Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method?

Flying High Air acquires a new aircraft. It has an estimated life of 10 years and should last for at least 20,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?

Assets classified as property, plant, and equipment are reported at

A company should choose a depreciation method that