LO8-1 Identify and determine the cost of long-term operational assets.

Copyright

Which of the following is not a tangible asset?

Multiple Choice

• Building

• Copyright

• Land

• Gold

True

Land is different from other tangible assets in that its utility is not diminished by its use. This statement is:

True or False

All of the answers are names of intangible assets.

Which of the following is an intangible asset?

Multiple Choice

• Patent

• Copyright

• Trademark

• All of the answers are names of intangible assets.

True

A franchise is an intangible asset that provides privileges related to other intangible assets. This statement is

True or False

tangible asset

Computer equipment is a(n):

Multiple Choice

• tangible asset.

• intangible asset.

$15,160.

Explanation

Cost of Asset:
List price	$ 14,000
Plus: Transportation-in	500
Plus: Training	800
Less: Cash discount ($14,000 list price × 0.01 discount)	(140)
Total cost capitalized	$ 15,160

The general rule in determining which costs to capitalize in an asset account is to capitalize any cost that is necessary to obtain the asset or to make it ready for use. Note that the $200 of insurance was not included because it applied to coverage after the asset had been acquired and set up for use.

Corazon Company purchased an asset with a list price of $14,000. Corazon paid $500 for transportation-in cost, $800 to train an employee to operate the equipment, and $200 to insure the asset against theft after it had been set up in the factory. The asset was purchased under terms 1/20, n/30 and Corazon paid for the asset within the discount period. Based on this information, Corazon would capitalize the asset in its books at:

Multiple Choice

• $15,160.

• $14,660.

• $14,800.

• $14,000.

Account Titles	Debit	Credit
Machine	4,500
Cash		4,500

Point Company paid $4,000 cash to purchase a new machine. The company also paid $500 cash for an initial training cost that was necessary to teach an employee how to operate the machine. Which of the following represents the journal entry that would be necessary to record all capitalized costs related to the purchase of the machine?

Multiple Choice

Account Titles	Debit	Credit
Machine	4,500
Cash		4,500

Account Titles	Debit	Credit
Cash	4,500
Machine		4,500

Account Titles	Debit	Credit
Machine	4,000
Cash		4,000

Account Titles	Debit	Credit
Cash	4,000
Machine		4,000

False

When the total estimated market value of assets acquired in a basket purchase is greater than the cost of the purchase, the company making the purchase must recognize a gain.

True or False

Option D

Harbor Company made a basket purchase. Specifically, the Company paid cash to purchase land, a building and equipment. The appraised market value of the individual items was greater than the purchase price. Which of the following shows how this purchase will affect a company’s financial statements? The letters “NA”, “OA” and “IA” indicate that the component of the equation is “Not Affected”, “Operating Activities” and “Investing Activities” respectively.

	Balance sheet					Income Statement					Statement of Cash Flows
	Assets	=	Liabilities	+	Equity	Revenues	−	Expenses	=	Net Income
A.	+	=	NA	+	+	NA	−	NA	=	NA	+ IA
B.	+	=	NA	+	+	+	−	NA	=	+	+ OA
C.	+/−	=	NA	+	NA	NA	−	NA	=	NA	− OA
D.	+/−	=	NA	+	NA	NA	−	NA	=	NA	− IA

Multiple Choice

• Option A

• Option B

• Option C

• Option D

Option A.

Explanation

Relative market values expressed as percentages:

Land: $100,000 ÷ ($100,000 + $350,000 + $50,000) = 20%

Building: $350,000 ÷ ($100,000 + $350,000 + $50,000) = 70%

Equipment: $50,000 ÷ ($100,000 + $350,000 + $50,000) = 10%

Cost allocated to each asset:

Land: $400,000 × 20% = $80,000

Building: $400,000 × 70% = $280,000

Equipment: $400,000 × 10% = $40,000

Sable Company paid $400,000 for a purchase that included land, a building, and equipment. An appraiser estimated the market value of the land to be $100,000, the building to be $350,000, and the equipment to be $50,000. Based on this information the cost that would be allocated to each of the assets is:

	Land	Building	Equipment
A.	$ 80,000	$ 280,000	$ 40,000
B.	$ 100,000	$ 350,000	$ 50,000
C.	$ 80,000	$ 240,000	$ 50,000
D.	$ 100,000	$ 280,000	$ 40,000

Multiple Choice

• Option A.

• Option B.

• Option C.

• Option D.