Which of the Following Statements Regarding the Fixed Asset Turnover

question 9

Multiple Choice

Which of the following statements regarding the fixed asset turnover ratio is incorrect?

• A)The numerator is net operating income.
• B)The denominator is average net fixed assets.
• C)The ratio is used to assess a company's effectiveness in generating sales from its fixed assets.
• D)The ratio increases when a company sells a factory building for a gain.

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Definitions:

Depletion Expense

An accounting approach to allocate the cost of extracting natural resources, like minerals or timber, over their productive life.

Mineral Deposit

A natural accumulation of minerals that can be economically extracted for use.

Trade-In Allowance

The amount credited to the buyer by a seller when the buyer returns a product, usually a vehicle, as part of the payment for a new item.

Commercial Substance

A concept in accounting that indicates a transaction significantly changes the economic circumstances of the involved parties, beyond the mere transfer of assets or obligations.