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.

Answer 1

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)

	Beginning Book value	Depreciation	Closing book value
Year 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)

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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