Recall That the Fixed Asset Turnover Ratio Equals Net Sales

question 102

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 above.

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Definitions:

Credit Sales

Sales made on credit, where the payment from the customer is received at a later date.

Accounts Receivable

Money owed to a business by its clients for goods or services delivered but not yet paid for.

Merchandise

Goods that are bought, sold, and traded within a retail or wholesale business environment.

Accounts Receivable

Represents money owed to a business by its customers for goods or services delivered but not yet paid for, usually recoverable within a short period, like 30, 60, or 90 days.