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Exam 9: Long-Lived Tangible and Intangible Assets

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Question 21

Multiple Choice

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Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is true?

A) Company A will have higher net income in the early years but Company B will have higher net income towards the end of the asset's useful life.
B) Company A will consistently have the larger net income until residual value is reached.
C) Company B will have higher net income in the early years but Company A will have higher net income towards the end of the asset's useful life.
D) Company B will consistently have the larger net income until residual value is reached.

E) None of the above
F) C) and D)

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Question 22

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If net sales revenue $\bold{rises}$ 5% while the average book value of fixed assets falls 5%:

A) the fixed asset turnover ratio will rise.
B) the fixed asset turnover ratio will fall.
C) the fixed asset turnover ratio will stay the same.
D) the impact on the fixed asset turnover ratio cannot be determined since the beginning values are unknown.

E) B) and D)
F) None of the above

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Question 23

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Deciding whether a cost is reasonable and necessary to acquire or prepare tangible assets for use can involve a great deal of judgment.

When a company records an asset impairment loss,it will reduce net income for that period.

If a company builds its own facility,only the cost of materials is capitalized.

Intangibles with unlimited or indefinite lives (trademarks and goodwill)are amortized using straight line depreciation method.

One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:

Assuming no additions,replacements,or extraordinary repairs,the book value of any long-lived asset with a limited life is always less than or equal to its acquisition cost.

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Which of the following statements is true?

A company expects to use equipment that cost $48,000 for ten years and then sell it for $6,000.Using the straight-line method,the company should report depreciation for the equipment of:

Some analysts compare companies by focusing on earnings before interest,taxes,and amortization (EBITDA).

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The residual value of the facility is:

Decorama Corp.bought a delivery van for $65,000 with a estimated residual value of $6,000.The van is expected to be used for the next 10 years.The company estimates it will be used to drive a total of 225,000,000 km (30,000 km in the first year,25,000 in the second,third and fourth years and 20,000 in the next six years. What would be the amount of depreciation expense in year 2 using the units-of-production method?

When the straight-line method is used to compute depreciation,an asset's carrying value remains constant over the life of the asset.

Match the term and the definition.Not all definitions will be used.

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 company buys a piece of equipment for $48,000.The equipment has a useful life of ten years.Using the double-declining-balance method,the company's depreciation expense in the first year would be:

Your company buys a computer server,which it expects to use for eight years and then sell when it upgrades to a more powerful model.The server would probably be used by the business that buys it at that time for another three years.The useful life of the server for your company is:

A piece of equipment was acquired on January 1,2018,at a cost of $22,000,with an estimated residual value of $2,000 and an estimated useful life of four years.The company uses the double-declining-balance method.What is its book value at December 31,2019?