D104 Intermediate Accounting II - Set 1 - Part 1

Correct Answer: An increase in the asset's Accumulated Depreciation account by $285,000

Impairment losses are recorded when the carrying amount exceeds the recoverable amount. In this case, the machinery’s fair value is used to calculate the impairment loss, which is the difference between the book value and fair value.

Correct Answer: $105,000

The impairment loss is calculated as the difference between the book value and the fair value, which results in $520,000 - $415,000 = $105,000.

Correct Answer: On assets being held for disposal

Restoration of an impairment loss is allowed only when the asset is held for disposal, as its fair value can change before the sale.

Correct Answer: Expected future net cash flows

Impairment occurs when the carrying amount of an asset exceeds the sum of expected future net cash flows, which represents the recoverable amount of the asset.

Correct Answer: It is usually part of the cost of goods sold.

Depletion expense is typically included in the cost of goods sold because it represents the cost of natural resources used in production.

Correct Answer: Units-of-production method

The units-of-production method is the most commonly used method for depletion because it matches the expense with the actual use of the natural resource.

Correct Answer: $3.2

The depletion charge is calculated as (Cost of Land + Restoration Costs - Land Value after restoration) / Total Recoverable Reserves = ($7,500,000 + $1,500,000 - $1,000,000) / 2,500,000 = $3.2 per ton.

Correct Answer: True

The units-of-production method is used to calculate depletion because it relates directly to the amount of the resource extracted.

Correct Answer: False

All these costs are part of the depletion base because they represent the costs necessary to bring the asset to its intended use.

Correct Answer: True

This formula is used to determine the cost per unit of a natural resource, which is then multiplied by the amount extracted to calculate depletion expense.

Correct Answer: Net sales

The asset turnover ratio measures how efficiently a company uses its assets to generate sales by dividing net sales by average total assets.

Correct Answer: Sales

The asset turnover ratio indicates how much revenue is generated for every dollar invested in assets.

Correct Answer: Net income divided by average total assets

Return on assets is calculated by dividing net income by average total assets, which measures how effectively a company uses its assets to generate profit.

Correct Answer: 2.33 times

Asset turnover is calculated as net sales divided by average total assets. In this case, $175 billion / $75 billion = 2.33 times.

Correct Answer: 20.0%

Return on assets is calculated as net income divided by average total assets. Average assets = ($900,000 + $1,100,000) / 2 = $1,000,000. Return on assets = $200,000 / $1,000,000 = 20.0%.

Correct Answer: 16.61%

Profit margin on sales is calculated as net income divided by net sales. In this case, $785,000 / $4,726,000 = 16.61%.

Correct Answer: It is necessary to include depreciation in corporate financial statements or notes thereto.

Depreciation is an important component of financial reporting and is required to be disclosed in financial statements or the accompanying notes.

Correct Answer: Net sales divided by average total assets

The asset turnover ratio is a measure of how efficiently a company uses its assets to generate sales, calculated as net sales divided by average total assets.

Correct Answer: The asset's acquisition cost less the total related depreciation recorded to date

The book value is the original cost of an asset minus the accumulated depreciation.

Correct Answer: Units-of-production method

The units-of-production method assumes depreciation is based on the actual usage or productivity of the asset, rather than the passage of time.