Exercise 8-1B: Long-term Operational Assets Used in a Business

Accounting for Long-Term Operational Assets

Exercise 8-1B: Long-term Operational Assets Used in a Business

Required
Give some examples of long-term operational assets that each of the following companies is likely to own:
(a) Sears
(b) Princess Cruise Lines
(c) Southwest Airlines
(d) Harley-Davidson Co

Exercise 8-2B: Identifying Long-term Operational Assets

Required
Which of the following items should be classified as long-term operational assets?

a. Cash
b. Buildings
c. Production machinery
d. Accounts receivable
e. Prepaid rent
f. Franchise
g. Inventory
h. Patent
i. Tract of timber
j. Land
k. Computer
l. Goodwill

Exercise 8-3B: Classifying Tangible and Intangible Assets

Required
Identify each of the following long-term operational assets as either tangible (T) or intangible (I).

a. Retail store building
b. Shelving for inventory
c. Trademark
d. Gas well
e. Drilling rig
f. FCC license for TV station
g. 18-wheel truck
h. Timber
i. Log loader
j. Dental chair
k. Goodwill
l. Computer software

Exercise 8-4B: Determining the Cost of an Asset

Scenario
Oregon Logging Co. purchased an electronic saw to cut various types and sizes of logs. The saw had a list price of $160,000. The seller agreed to allow a 5 percent discount because Oregon paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $3,200. Oregon had to hire an individual to operate the saw. Oregon had to build a special platform to mount the saw. The cost of the platform was $2,500. The saw operator was paid an annual salary of $50,000. The cost of the company’s theft insurance policy increased by $1,800 per year as a result of acquiring the saw. The saw had a five-year useful life and an expected salvage value of $25,000.

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

Exercise 8-5B: Allocating Costs on the Basis of Relative Market Values

Scenario
Florida Company purchased a building and the land on which the building is situated for a total cost of $800,000 cash. The land was appraised at $300,000 and the building at $700,000.

Required
a. What is the accounting term for this type of acquisition?
b. Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building.
c. Would the company recognize a gain on the purchase? Why or why not?
d. Record the purchase in a statements model like the following one:
e. Record the purchases in general journal format