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Question: On January 2, Summers Company received a

On January 2, Summers Company received a machine that the company had ordered with an invoice price of $85,000. Freight costs of $1,000 were paid by the vendor per the sales agreement. The company exchanged the following on January 2 to acquire the machine: a. Issued 2,000 shares of Summers Company common stock, par value $1 (market value, $3.50 per share). b. Signed a note payable for $60,000 with an 11.5 percent interest rate (principal plus interest are due April 1 of the current year). c. The balance of the invoice price was on account with the vendor, to be paid in cash by January 12. On January 3, Summers Company paid $2,400 cash for installation costs to prepare the machine for use. On January 12, Summers Company paid the balance due on its accounts payable to the vendor. Required: 1. What are the classifications of long-lived assets? Explain their differences. 2. Record the purchase on January 2, the installation costs on January 3, and the subsequent payment on January 12. Show computations. 3. Indicate the accounts, amounts, and effects (+ for increase and − for decrease) of the purchase and subsequent cash payment on the accounting equation. Use the following structure:
On January 2, Summers Company received a machine that the company had ordered with an invoice price of $85,000. Freight costs of $1,000 were paid by the vendor per the sales agreement. The company exchanged the following on January 2 to acquire the machine:
a. Issued 2,000 shares of Summers Company common stock, par value $1 (market value, $3.50 per share).
b. Signed a note payable for $60,000 with an 11.5 percent interest rate (principal plus interest are due April 1 of the current year).
c. The balance of the invoice price was on account with the vendor, to be paid in cash by January 12. On January 3, Summers Company paid $2,400 cash for installation costs to prepare the machine for use.
On January 12, Summers Company paid the balance due on its accounts payable to the vendor.
Required:
1. What are the classifications of long-lived assets? Explain their differences.
2. Record the purchase on January 2, the installation costs on January 3, and the subsequent payment on January 12. Show computations.
3. Indicate the accounts, amounts, and effects (+ for increase and − for decrease) of the purchase and subsequent cash payment on the accounting equation. Use the following structure:
4. What is the cost of the machine recorded on Summers’s records? Explain the basis you used for any questionable items.

4. What is the cost of the machine recorded on Summers’s records? Explain the basis you used for any questionable items.


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