138. Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a
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Question
138. Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $156,000. The asset is expected to have a salvage value of $16,400 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:
142.
A total asset turnover ratio of 3.6 indicates that:
Multiple Choice
A. For every $1 in assets, the firm paid $3.6 in expenses during the period.
B. For every $1 in sales, the firm acquired $3.6 in assets during the period.
C. For every $1 in assets, the firm produced $3.6 in net sales during the period.
D. For every $1 in assets, the firm earned gross profit of $3.6 during the period.
E. For every $1 in assets, the firm earned $3.6 in net income.
Explanation / Answer
Question 138
Calculation of depreciation under doube declining balance method:
**Depreciation = Book value at the beginning of the year x Straight-line depreciation rate x 2
**Straight line depreciation rate is nothing but annual depreciation expressed in percentage.
Straight line depreciation rate = [Annual Depreciation under SLM ÷ asset value subject to depreciation]
Annual depreciation under SLM = ($156,000 - $16,400) ÷ 5 years = $27,920
Therefore, Straight line depreciation rate = $27,900 ÷ ($156,000 - $16,400)] = 20% (Approximately)
Year 1
October to december
(3 months)
$15,600
($156,000 x 20% x 2) x 3/12
$140,400
($156,000 - $15,600)
Year 2
January to December
(12 months)
$56,160
(140,400 x 20% x 2)
$84,240
($140,400 - $56,160)
Therefore, the book value of the asset on december 31, year 2 = $84,240.
Note - SLM = Straight line method
Question -142
***Total asset turnover ratio = Net sales ÷ Average total assets
Average total assets = (Beginning total assets + Closing total assets) ÷ 2
A total asset turnover ratio of 3.6 indicates that for every $1 in assets, the firm produced $3.6 in net sales during the period.
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Beginning Book value Depreciation Closing book valueYear 1
October to december
(3 months)
$156,000$15,600
($156,000 x 20% x 2) x 3/12
$140,400
($156,000 - $15,600)
Year 2
January to December
(12 months)
$140,400$56,160
(140,400 x 20% x 2)
$84,240
($140,400 - $56,160)
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