Question

The following are independent situations.

a. A company purchases a piece of land for $ 100,000 cash. An appraiser for the buyer valued the land at $ 105,000.

b. A telecommunications company purchases the patent (an intangible asset) on a software application for its wireless communication system. The company paid $ 250,000 cash and signed a note for $ 550,000, payable in one year at an annual interest rate of 5 percent.

c. A company orders and receives five laptops for office use for which it signs a note promising to pay $ 12,000 within three months.

d. A company makes a cash payment of $ 5,400 for prepaid services.

e. A manufacturing company signs a contract for the construction of a new warehouse for $ 500,000. At the signing, the company writes a cheque for $ 50,000 as a deposit on the future construction.

f. A publishing firm purchases the copyright (an intangible asset) to a manuscript for an introductory accounting text from the author for $ 40,000.

g. A company purchases a new delivery truck that has a list, or sticker, price of $ 35,000 for $ 32,000 cash.

h. A company purchases on account women’s clothing for sale to customers. The supplier’s invoice of $ 2,430 is payable within 30 days.

i. A new company is formed and sells 2,000 shares for $ 22 per share to investors.

j. A company purchases 400 shares of Sun-Rype Products Ltd. for $ 2,432 cash.

k. A local company is a sole proprietorship (one owner); its owner buys a car for $ 10,000 for personal use. Answer from the company’s point of view.

l. A manufacturing firm pays dividends of $ 100,000 to shareholders in cash.

m. A company pays $ 1,500 principal on its note payable.

Required:

1. Indicate the appropriate elements on the classified statement of financial position (use account titles), if any, that are affected in each of the preceding events. Consider what is given and what is received.

2. At what amount would you record the land in (a)? The truck in (g)? What measurement principle are you applying?

3. What accounting concept did you apply for situation (k)?

Answer 1