Recall that the Fixed Asset Turnover Ratio equals Net Sales Revenue divided by Average Net Fixed Assets.Assume that,prior to preparing adjusting entries at the end of the year,Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000.Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase?
A)Caterpillar accrues and capitalizes $50,000 of interest for self-constructed assets.
B)Caterpillar accrues a liability for ordinary repair costs in the amount of $50,000.
C)Caterpillar writes-down an impaired piece of equipment by $50,000.
D)None of the above.

Question

Quizplus · Accepted Answer

Writing down an impaired piece of equipment by $50,000 reduces the average net fixed assets, which increases the fixed asset turnover ratio, assuming net sales revenue remains constant.

Recall That the Fixed Asset Turnover Ratio Equals Net Sales