Q: Which of the following is the correct formula for calculating the rate of return on assets (ROA)?

$$\text{ROA} = \frac{\text{Net Income}}{\text{Average Total Assets}}$$

Q: Which of the following is the correct formula for calculating annual depreciation expense using the straight-line method?

$$\text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$$

Question 1

Which of the following costs should NOT be included in the cost of land when recording its purchase on the balance sheet?

Accepted Answer

Cost to pave the parking lot

Question 2

A company purchases land and a building for a lump-sum price of $$2,800,000. The appraised values are 300$$,000 for the land and $2,700,000 for the building. What is the cost assigned to the building using the relative-sales-value method?

Accepted Answer

$2,520,000

Question 3

Which of the following expenditures should be capitalized rather than expensed immediately?

Accepted Answer

Replacing the roof of a warehouse to extend its useful life

Question 4

A machine was purchased for $$550,000 with an estimated residual value of 35$$,000 and a useful life of 10 years. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$51,500

Question 5

A business purchased a machine for $$550,000 with a residual value of 35$$,000 and expects to produce 1,980,000 units over its life. If the machine produces 500,000 units in year one and 400,000 units in year two, what is the book value at the end of year two using the units-of-production method? (Round depreciation per unit to the nearest cent.)

Accepted Answer

$316,000

Question 6

Which depreciation method results in the highest depreciation expense in the first year of an asset’s life?

Accepted Answer

Double-declining-balance method

Question 7

A company purchased equipment for $$10,000 on January 1, 2018, with a 10-year useful life and no residual value. If the company sells the equipment on September 30, 2021, for 7$$,300, what is the gain or loss on the sale? (Use straight-line depreciation.)

Accepted Answer

Gain of $1,050

Question 8

Which of the following statements about depreciation is TRUE?

Accepted Answer

Depreciation allocates the cost of an asset over its useful life

Question 9

A plant asset purchased for $$400,000 was depreciated 75% when the owner sold it for 80$$,000. What is the correct entry to record the sale?

Accepted Answer

Debit to Loss on Sale of Asset for $20,000

Question 10

Which of the following is the correct formula for calculating the rate of return on assets (ROA)?

Accepted Answer

$$	ext{ROA} = \frac{	ext{Net Income}}{	ext{Average Total Assets}}$$

Question 11

Which of the following is NOT an intangible asset?

Accepted Answer

Warehouse

Question 12

Under U.S. GAAP, how are research and development (R&D) costs treated?

Accepted Answer

They are expensed as incurred

Question 13

Which of the following best describes a capital expenditure?

Accepted Answer

A cost that increases the asset’s capacity or extends its useful life

Question 14

A company uses the double-declining-balance method for a machine with a cost of $$550,000, a residual value of 35$$,000, and a useful life of 10 years. What is the depreciation expense for year one?

Accepted Answer

$110,000

Question 15

Which of the following statements about goodwill is TRUE?

Accepted Answer

Goodwill is only recorded when purchased

Question 16

Which of the following is the correct formula for calculating annual depreciation expense using the straight-line method?

Accepted Answer

$$	ext{Annual Depreciation} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}}$$

Question 17

Which of the following is a reason why land improvements are recorded separately from land?

Accepted Answer

Land improvements are depreciated, but land is not

Question 18

If an asset is impaired, what is the required accounting treatment?

Accepted Answer

Adjust the carrying value downward to fair value

Question 19

Which of the following transactions would be classified as an investing activity on the statement of cash flows?

Accepted Answer

Purchasing new equipment

Plant Assets, Natural Resources, and Intangibles: Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards