Q: Which formula correctly calculates the 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 acquired for use in operations?

Accepted Answer

Cost of paving the parking lot

Question 2

A company purchases a group of assets (land and building) for a lump-sum price of $$2,800,000. The appraised values are 300$$,000 for land and $2,700,000 for the building. What amount should be allocated to the land?

Accepted Answer

$280,000

Question 3

Which of the following is a capital expenditure?

Accepted Answer

Replacement of a truck’s engine to extend its useful life

Question 4

A company purchases equipment for $$41,000, expects a residual value of 1$$,000, and a useful life of 5 years. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$8,000

Question 5

Which depreciation method is best suited for assets that generate more revenue in the earlier years of their useful life?

Accepted Answer

Double-declining-balance method

Question 6

FedEx purchases a warehouse for $$500,000 on September 1. The estimated life is 20 years, residual value is 80$$,000, and the fiscal year ends May 31. What is the depreciation expense for the first year using straight-line depreciation?

Accepted Answer

$15,750

Question 7

A machine with a cost of $$60,000 and accumulated depreciation of 60$$,000 is disposed of for no proceeds. What is the effect on the accounting equation?

Accepted Answer

No effect on total assets, liabilities, or equity

Question 8

A company sells equipment for $$7,300. The equipment originally cost 10$$,000, has been depreciated by $3,750, and has no residual value. What is the gain or loss on the sale?

Accepted Answer

Gain of $1,050

Question 9

Which of the following statements about natural resources is correct?

Accepted Answer

Depletion expense is recorded as the resource is used

Question 10

A patent is acquired for $170,000 and has a useful life of 5 years. What is the annual amortization expense?

Accepted Answer

$34,000

Question 11

Goodwill is recorded on the balance sheet when:

Accepted Answer

A company purchases another company for more than the fair value of its net assets

Question 12

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

Accepted Answer

Expensed as incurred

Question 13

An asset has a net book value of $$100 million, estimated future cash flows of 80 $$million, and a fair value of $70 million. What is the impairment loss to be recorded?

Accepted Answer

$30 million

Question 14

Which formula correctly calculates the return on assets (ROA)?

Accepted Answer

$$	ext{ROA} = \frac{	ext{Net income}}{	ext{Average total assets}}$$

Question 15

Which of the following is NOT a cash flow impact of long-lived asset transactions on the statement of cash flows?

Accepted Answer

Depreciation expense as an investing activity

Question 16

A company changes the useful life of an asset from 10 years to 14 years after 4 years of use. The asset cost $$50,000, has no residual value, and 20$$,000 of accumulated depreciation. What is the new annual depreciation expense?

Accepted Answer

$3,000

Question 17

Which of the following best describes the difference between U.S. GAAP and IFRS in accounting for property, plant, and equipment?

Accepted Answer

IFRS uses a component approach for depreciation, GAAP does not

Question 18

Which Excel function would you use to calculate straight-line depreciation for an asset?

Accepted Answer

SLN

Question 19

A company extracts 3,000,000 barrels of oil from a reserve purchased for $100,000,000 (10,000,000 barrels estimated). What is the depletion expense for the year if 1,000,000 barrels are sold?

Accepted Answer

$10,000,000

Question 20

Which of the following is an example of an intangible asset with an indefinite life?

Accepted Answer

Trademark with no expiration

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

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