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

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

Question 1

Which of the following costs should NOT be included in the cost of land when acquired for use in a business?

Accepted Answer

Cost to pave the parking lot

Question 2

FedEx purchases land and a 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 is the cost assigned to the land using the relative-sales-value method?

Accepted Answer

$280,000

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?

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

Accepted Answer

$51,500

Question 5

A business purchased a machine for $$550,000 with a residual value of 35$$,000 and a useful life of 10 years. Using the units-of-production method, if the machine produces 500,000 units in year one and 400,000 units in year two (total expected output is 1,980,000 units), what is the book value at the end of year two?

$$	ext{Depreciation per unit} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Total Units}}$$

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 $$550,000 with a useful life of 10 years and no salvage value. Using the double-declining-balance method, what is the depreciation expense for the first year?

$$	ext{DDB Rate} = \frac{1}{	ext{Useful Life}} 	imes 2$$ 
$$	ext{Depreciation Expense} = 	ext{Beginning Book Value} 	imes 	ext{DDB Rate}$

Accepted Answer

$110,000

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 NOT an intangible asset?

Accepted Answer

Land improvement

Question 11

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

Accepted Answer

They are expensed as incurred.

Question 12

Which of the following best describes goodwill?

Accepted Answer

The excess of the cost of purchasing another company over the sum of the market values of its net assets.

Question 13

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 14

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

Accepted Answer

Purchasing new equipment for cash

Question 15

Which of the following statements about asset impairment is TRUE?

Accepted Answer

If an asset is impaired, its carrying value must be adjusted downward to fair value.

Question 16

Which of the following is a reason why companies classify plant assets into categories such as land, building, and equipment?

Accepted Answer

To track costs for assets with different useful lives and calculate expense accurately

Question 17

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

Accepted Answer

SLN

Question 18

A company purchases a patent for $$170,000 and estimates its useful life to be 5 years. What is the annual amortization expense?

$$	ext{Amortization Expense} = \frac{	ext{Cost}}{	ext{Useful Life}}$

Accepted Answer

$34,000

Question 19

Which of the following is TRUE regarding leasehold improvements?

Accepted Answer

They are depreciated or amortized over the lease term.

Plant Assets, Natural Resources, and Intangibles – Comprehensive Study Notes

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