Multiple choice questions related to capitalization costs of Machinery and alculation  of interest on notes payable at maturity

1) Stockton Corporation purchased equipment for $32,000. Stockton also paid $400 for freight and insurance while the equipment was in transit. Sales tax amounted to $240. Maintenance the first year of use cost $1,000. How much should Stockton Corporation capitalize as the cost of the equipment?

a.         $30,000

b.        $30,400

c.         $32,640

d.        $31,640

2) On December 11, the D. Baker Corporation purchases $15,000 of equipment by issuing a 30-day, 12% note payable. The amount of cash paid for interest at maturity on the note is:

a.         $75

b.        $150

c.         $800

d.        $1,800

3) On January 2, 2005, Kansas Corporation acquired equipment for $140,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $40,000. If Kansas Corporation uses the straight-line method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2006, during which period the asset was used 4,500 hours?

a.         $20,000

b.        $22,500

c.         $28,000

d.        $31,500

4) On January 2, 2005, Baldwin Corporation acquired equipment for $96,000. The estimated life of the equipment is 3 years or 18,000 hours. The estimated residual value is $6,000. What is the depreciation for 2006, if Baldwin Corporation uses the asset 4,000 hours and uses the units-of-production method of depreciation?

a.         $20,000

b.        $21,333

c.         $32,000

d.        $30,000

5) On January 2, 2005, Shandley Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the amount of depreciation expense for 2007, if Shandley Corporation uses the asset 3,800 hours and uses the double-declining-balance method of depreciation?

a.         $17,280

b.        $10,368

c.         $20,000

d.        $25,920

6) On December 11, the D. Baker Corporation purchases $15,000 of equipment by issuing a 30-day, 12% note payable. The approximate amount of accrued interest on December 31 is:

a.         $240

b.        $160

c.         $105

d.        $ 0

7) Jaye's Company paid $600 cash to replace a part on equipment sold under warranty. To recognize this payment, which of the following are correct?

a.         debit Warranty Expense and credit Cash

b.        debit Warranty Payable and credit Cash

c.         debit Equipment Expense and Cash

d.        debit Parts Expense and credit Cash

8) A company has a contingent loss that has a reasonable possible chance of occurrence. What reporting is required regarding this contingency?

a.         It should be accrued (i.e. journal entry) and reported on the financial statements.

b.        It should be reported in the notes to the financial statements.

c.         It should be ignored until the actual loss materializes.

d.        It should be accrued and reported on the financial statements and reported in the notes to the financial statements