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 answers are acceptable.

Question

Quizplus · Accepted Answer

Writing down an impaired piece of equipment by $50,000 would decrease the average net fixed assets, which, when the numerator (Net Sales Revenue) remains constant, would increase the Fixed Asset Turnover Ratio.

Recall That the Fixed Asset Turnover Ratio Equals Net Sales