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 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) Caterpillar increases the sales returns & allowances by $50,000.

Question

Quizplus · Accepted Answer

Writing down an impaired asset reduces the average net fixed assets, which increases the fixed asset turnover ratio if net sales remain unchanged.

Recall That the Fixed Asset Turnover Ratio Equals Net Sales