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

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

Question 1

Which of the following costs should NOT be included in the cost of land when preparing it for its intended use?

Accepted Answer

Cost of paving the parking lot

Question 2

A company purchases land and a building for $$1,000,000. The appraised values are 250$$,000 for the land and $750,000 for the building. What amount should be allocated to the land using the relative-sales-value method?

Accepted Answer

$200,000

Question 3

Which of the following is a capital expenditure?

Accepted Answer

Adding a new wing to a building

Question 4

Which depreciation method results in the highest depreciation expense in the first year?

Accepted Answer

Double-declining-balance method

Question 5

A machine was purchased for $$50,000, has a residual value of 5$$,000, and a useful life of 5 years. Using the straight-line method, what is the annual depreciation expense?

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

Accepted Answer

$9,000

Question 6

Which of the following statements about depreciation is TRUE?

Accepted Answer

Depreciation allocates the cost of an asset to expense over its useful life.

Question 7

A company purchased equipment for $$41,000. It expects to use the equipment for 5 years with a residual value of 1$$,000. Using the double-declining-balance method, what is the depreciation expense for the first year?

$$	ext{DDB Rate} = 2 	imes \frac{1}{	ext{Useful Life}}$$

Accepted Answer

$16,400

Question 8

Which of the following is NOT an intangible asset?

Accepted Answer

Building

Question 9

FedEx acquires Europa Company for $$10 million. Europa has assets with a market value of 9 $$million and $$2 million in liabilities. What amount of goodwill should FedEx record?

$$	ext{Goodwill} = 	ext{Purchase Price} - (	ext{Market Value of Assets} - 	ext{Liabilities})$

Accepted Answer

$3 million

Question 10

Which of the following best describes the accounting treatment for a patent with a finite useful life?

Accepted Answer

It is amortized over its useful life.

Question 11

A company sells equipment that originally cost $$10,000 and has accumulated depreciation of 7$$,000. If the equipment is sold for $$4,000, what is the gain or loss on the sale?

$$	ext{Book Value} = 	ext{Cost} - 	ext{Accumulated Depreciation}$$ 
$$	ext{Gain/Loss} = 	ext{Sale Price} - 	ext{Book Value}$

Accepted Answer

Gain of $1,000

Question 12

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

Accepted Answer

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

Question 13

Which depreciation method is most appropriate for an asset that generates revenue evenly over its useful life?

Accepted Answer

Straight-line method

Question 14

A company purchased a truck for $$41,000. It expects to drive the truck 100,000 miles over its useful life and estimates a residual value of 1$$,000. If the truck is driven 20,000 miles in the first year, what is the depreciation expense using the units-of-production method?

$$	ext{Depreciation per mile} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Total Estimated Miles}}$$

Accepted Answer

$8,000

Question 15

Which of the following statements about fully depreciated assets is TRUE?

Accepted Answer

They can continue to be used, but no further depreciation is recorded.

Question 16

Which of the following is an example of a leasehold improvement?

Accepted Answer

Installing new lighting in a leased office space

Question 17

Which of the following is TRUE regarding the accounting for natural resources?

Accepted Answer

They are depleted as they are used.

Question 18

A company incorrectly expenses a cost that should have been capitalized. What is the effect on net income and assets?

Accepted Answer

Net income is understated; assets are understated.

Question 19

Which of the following is TRUE about goodwill?

Accepted Answer

It is only recorded when purchased in a business combination.

Plant Assets, Natural Resources, and Intangibles: Financial Accounting Study Notes

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