Explaining the Nature of a Long Lived Asset and Determining and Recording the Financial Statement Effects of Its Purchase On June 1, 2012, the Wallace Corp. bought a machine for use in operations. The machine has an estimated useful life of six years and an estimated residual value of $2,000. The company provided the following expenditures:
a. Invoice price of the machine, $60,000.
b. Freight paid by the vendor per sales agreement, $650.
c. Installation costs, $1,500.
d. Payment was made as follows:
On June 1:
¦The installation costs were paid in cash.
¦Wallace Corp. common stock, par $2; 2,000 shares (market value, $6 per share).
¦Balance of the invoice price on a note payable, 12 percent due September 2, 2012 (principal plus interest). On September 2:
¦Wallace Corp. paid the balance and interest due on the note payable.
1. What are the classifications of long lived assets? Explain their differences.
2. Record the purchase on June 1 and the subsequent payment on September 2. 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:
Date Assets = Liabilities + Stockholders’ Equity
4. Explain the basis you used for any questionable items.