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Question P8-1

Requirement 1

Long-lived assets are tangible and intangible resources owned by a business and used in its operations over several years. Tangible assets (such as property, plant, and equipment or natural resources) are assets that have physical substance. Intangible assets (such as goodwill or patents) are
assets that have special rights but not physical substance.


Requirement 2

Date Assets Liabilities Stockholders’ Equity
Jan 2 Equipment(1)
Cash +71,520
-2,000 Note payable
Accounts payable(2) +40,000
+23,520 Common stock(3)
Additional paid-in capital(4) +2,000
+4,000
Jan 15 Cash -24,000 Accounts payable -23,520 Financing
expense -480

Computations:
(1) Equipment: $70,000 invoice – $480 (2% of $24,000
cash to be paid*)
+ $2,000 installation
* Assets are recorded at the cash equivalent price

(2) Balance payable: $70,000 invoice – $40,000 note
payable
– $6,000 common stock and additional paid in capital
–
$480 (2% of $24,000 cash to be paid)

(3) Common stock: $1 par value x 2,000 shares

(4) Additional paid-in capital: ($3 market value -
$1 par value) x 2,000 shares


Requirement 3

Cost of the machinery includes installation costs.
Freight was excluded because it was an expense to the
vendor. No discount was taken because Blumkin Company
paid the cash balance due after the discount period
ended. Common stock is valued at $3 per share—for
accounting purposes, this amount is allocated between
the common stock account for the par value ($1 per
share) and the additional paid-in capital account for
the remaining value ($2 per share in excess of par
value).