Recall That the Fixed Asset Turnover Ratio Equals Net Sales

question 35

Multiple Choice

Recall that the Fixed Asset Turnover Ratio equals Net Sales Revenue divided by Average Net Fixed Assets.Assume that,prior to preparing adjusting entries at the end of the year,Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000.Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase?

• A)Caterpillar accrues and capitalizes $50,000 of interest for self-constructed assets.
• B)Caterpillar accrues a liability for ordinary repair costs in the amount of $50,000.
• C)Caterpillar writes-down an impaired piece of equipment by $50,000.
• D)None of the answers are acceptable.

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Definitions:

Owner's Drawings

Withdrawals made by the owner of a sole proprietorship or partnership from the business for personal use.

Revenues

The total income generated from the sale of goods or services related to a company's primary operations.

Adjusting Entries

Entries recorded in journals at the conclusion of an accounting period to assign revenues and costs to the time frame in which they were genuinely incurred.

Source Documents

Source documents are original records that contain the details to support business transactions, such as receipts and invoices.