Question Details

What should be the cost of the new truck for financial accounting purposes 



1.	On August 1, 2010, Mendez Corporation purchased a new machine on a deferred payment basis. A down payment of $2,000 was made and 4 annual installments of $6,000 each are to be made beginning on September 1, 2010. The cash equivalent price of the machine was $23,000. Due to an employee strike, Mendez could not install the machine immediately, and thus incurred $300 of storage costs. Costs of installation (excluding the storage costs) amounted to $800. The amount to be capitalized as the cost of the machine is
a.	$23,000.
b.	$23,800.
c.	$24,100.
d.	$26,000.

	2.	Siegle Company exchanged 400 shares of Guinn Company ordinary shares, which Siegle was holding as an investment, for equipment from Mayo Company. The Guinn Company ordinary shares, which had been purchased by Siegle for $50 per share, had a quoted market value of $58 per share at the date of exchange. The equipment had a recorded amount on Mayo's books of $21,000. What journal entry should Siegle make to record this exchange?
	a.	Equipment 		20,000
			Investment in Guinn Co. Ordinary Shares 			20,000
	b.	Equipment 		21,000
			Investment in Guinn Co. Ordinary Shares 			20,000
			Gain on Disposal of Investment 			1,000
	c.	Equipment 		21,000
		Loss on Disposal of Investment 		2,200
			Investment in Guinn Co. Ordinary Shares 			23,200
	d.	Equipment 		23,200
			Investment in Guinn Co. Ordinary Shares 			20,000
			Gain on Disposal of Investment 			3,200

	3.	On January 2, 2010, Rapid Delivery Company traded in an old delivery truck for a newer model. The exchange lacked commercial substance. Data relative to the old and new trucks follow:
Old Truck
Original cost	$24,000
Accumulated depreciation as of January 2, 2010	16,000
Average published retail value	7,000
New Truck
List price	$40,000
Cash price without trade-in	36,000
Cash paid with trade-in	30,000
What should be the cost of the new truck for financial accounting purposes ?
a.	$30,000.
b.	$36,000.
c.	$38,000.
d.	$40,000.

	4.	On December 1, 2010, Kelso Company acquired a new delivery truck in exchange for an old delivery truck that it had acquired in 2007. The old truck was purchased for $35,000 and had a book value of $13,300. On the date of the exchange, the old truck had a fair value of $14,000. In addition, Kelso paid $45,500 cash for the new truck, which had a list price of $63,000. The exchange lacked commercial substance. At what amount should Kelso record the new truck for financial accounting purposes?
a.	$45,500.
b.	$58,800.
c.	$59,500.
d.	$63,000.



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