Exercise 8-1A Long-term operational assets used in a business

Accounting for Long-Term Operational Assets

Exercise 8-1A Long-term operational assets used in a business

Required
Provide examples of long-term operational assets that each of the following companies is likely to own:
(a) Caterpillar,
(b) Amtrak,
(c) Facebook,
(d) Bank of America Corp.

Exercise 8-2A Identifying long-term operational assets

Required
Determine which of the following items should be classified as long-term operational assets:
a. Prepaid insurance
b. Coal mine
c. Office equipment
d. Accounts receivable
e. Supplies
f. Copyright
g. Delivery van
h. Land used in the business
i. Goodwill
j. Cash
k. Filing cabinet
l. Tax library of accounting firm

Exercise 8-3A Classifying tangible and intangible assets

Required
Classify each of the following long-term operational assets as either tangible (T) or intangible (I):
a. Pizza oven
b. Land
c. Franchise
d. Filing cabinet
e. Copyright
f. Silver mine
g. Office building
h. Drill press
i. Patent
j. Oil well
k. Desk
l. Goodwill

Exercise 8-4A Determining the cost of an asset

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $140,000. The seller agreed to allow a 4 percent discount due to Southwest Milling paying cash. Delivery terms were FOB shipping point, with freight costing $1,200. Southwest Milling hired a specialist to calibrate the loader for a fee of $1,800. The loader operator earns an annual salary of $60,000. The company's theft insurance policy cost increased by $800 per year due to the loader's acquisition. The loader has a four-year useful life and an estimated salvage value of $6,000.

Required
a. Determine the amount to be capitalized in an asset account for the loader’s purchase.
b. Record the purchase in general journal format.

Exercise 8-5A Allocating costs on the basis of relative market values

Carver Inc. purchased a building and the land on which it stands for a total cost of $700,000 cash. The land was appraised at $320,000 and the building at $480,000.

Required
a. Calculate the portion of the purchase cost allocated to the land and the portion allocated to the building.
b. Determine if the company would recognize a gain on the purchase, and explain why or why not.
c. Record the purchase in a statements model similar to the one below:
d. Record the purchase in general journal format.