CAT CAT Inventory & Asset Management 2

Question 1

Under US GAAP, what is the straight-line depreciation method?

Accepted Answer

Equal depreciation expense each year over the asset's useful life

Answer

Higher depreciation in early years, declining over time

Answer

Depreciation based on actual units produced by the asset

Answer

Depreciation calculated as a fixed percentage of book value

Question 2

Which depreciation method produces higher depreciation expense in the early years of an asset's life?

Accepted Answer

Double-declining balance

Answer

Straight-line

Answer

Units-of-production

Answer

Sum-of-years digits (either answer is acceptable)

Question 3

What is the book value of a fixed asset?

Accepted Answer

Original cost minus accumulated depreciation

Answer

Current market value of the asset

Answer

Replacement cost of the asset

Answer

Original cost plus improvements and repairs

Question 4

What journal entry is made when a company purchases equipment for cash?

Accepted Answer

Debit Equipment, Credit Cash

Answer

Debit Cash, Credit Equipment

Answer

Debit Depreciation Expense, Credit Equipment

Answer

Debit Accounts Payable, Credit Equipment

Question 5

When a fully depreciated asset is sold for a gain, which account is credited for the proceeds?

Accepted Answer

Cash

Answer

Accumulated Depreciation

Answer

Gain on Sale of Asset

Answer

Retained Earnings

Question 6

What does the term 'capital expenditure' (CapEx) mean in asset management?

Accepted Answer

Spending that adds to or extends the useful life of an asset and is capitalized on the balance sheet

Answer

Routine repair costs expensed in the current period

Answer

Cash paid for operating expenses such as rent and utilities

Answer

Dividends paid to shareholders from retained earnings