Bob's Toys Has a fiXed Asset Turnover Rate of 1

question 368

Multiple Choice

Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of .84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of .96. Both companies have
Similar operations. Bob's Toys:

• A) Is using its fixed assets more efficiently than Gerold's Toys.
• B) Is using its total assets more efficiently than Gerold's Toys.
• C) Is generating $1 in sales for every $1.20 in net fixed assets.
• D) Is generating $1.20 in net income for every $1 in net fixed assets.
• E) Has $.84 in total assets for every $.96 Gerold's has in total assets.

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Definitions:

Allowance Method

An accounting technique to estimate and record bad debts expense, acknowledging that a certain percentage of accounts receivable may not be collectible.

Aging Receivables

A method of categorizing accounts receivable based on how long they have been outstanding to assess and manage credit risk.

Bad Debt Expense

Represents the portion of receivables that a company estimates it will not be able to collect.

Allowance for Doubtful Accounts

A contra account that estimates the portion of accounts receivable which may not be collectible.