Lesson 15

Question 1

When companies deplete natural resources, how to they record the depletion expense?

Answer 1

Most common is a credit to the natural resource account directly

Question 2

What 4 things should companies disclose on the financial statements of the depreciation method(s)?

Answer 2

1. depreciation expense for the period
2. balances of major classes of depreciable assets (by nature or function)
3. accumulated depreciation (either by class of in total)
4. a general description of the method or methods used in computing depreciation with respect to the classes of depreciable assets.

Question 3

What disclosure should be on financial statements that relate to oil and gas industry?

Answer 3

1. the basic method of accounting for those costs incurred in the oil and gas producing activities
2. how the company disposes of costs related to extractive activities

Question 4

Define Asset turnover ratio and formula.

Answer 4

a ratio that gives the dollars of sales produced by each dollar invested: calculated by dividing net sales by average total assets for the period

Question 5

Profit margin on sales (return on sales ) formula

Answer 5

net income divided by net sales

Question 6

How can you see how profitably the company uses it assets. (what formula is used)

Answer 6

Return on assets = Profit margin on sales X asset turnover

Question 7

Return on assets

Answer 7

Net income divided by average total assets

Question 8

In 2020, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $75 billion.

What is Bargain shop’s asset turnover?

Answer 8

2.33 times
Correct. The asset turnover ratio is calculated by dividing the net sales by the average total assets for the period. Bargain’s asset turnover is $175 / $75 = 2.33 times.

Question 9

For 2020, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,000,000, and net income of $200,000.

What is Hammer’s return on assets for 2020?`

Answer 9

20.0%
Correct. The return on total assets is calculated as net income divided by average total assets. Hammer’s return on assets is calculated as: $200,000 ÷ [($900,000 + $1,100,000) ÷ 2] = 20%.`

Question 10

In its 2017 annual report, Crane Manufacturing Company reports beginning-of-the-year total assets of $2,682,000, end-of-the-year total assets of $2,883,000, total sales of $4,726,000, and net income of $785,000.

What is Crane’s Profit Margin on Sales?

Answer 10

16.61%
Correct. The profit margin on sales ratio is calculated as Net Income / Net Sales. Crane’s profit margin is calculated as: $785,000 / $4,726,000 = 16.61%.

Question 11

What is true regarding a general description of the depreciation methods applicable to major classes of depreciable assets?

Answer 11

It is necessary to include depreciation in corporate financial statements or notes thereto.
Correct! Because of the significant impact that depreciation has on the financial statements, the depreciation methods, regardless of which methods are used, need to be included in the financial statements or the notes attached thereto.

Question 12

How do you calculate the asset turnover ratio?

Answer 12

Net sales/average total assets
Correct. The asset turnover ratio is calculated by dividing the net sales by the average total assets for the period.

Question 13

What is the book value of a plant asset equal to?

Answer 13

The asset’s acquisition cost less the total related depreciation recorded to date
Correct. The book value of an asset is equal to the asset’s acquisition cost less the total related depreciation recorded to date (accumulated depreciation).