On January 2, 2003, Blumkin Company bought a machine for use in operations. The machine has an estimated useful life of eight years and an estimated residual value of $1,500. The company provided the following expenditures:

a. Invoice price of the machine, $70,000.

b. Freight paid by the vendor per sales agreement, $800.

c. Installation costs, $2,000.

d. Payment of the $70,000 was made as follows:

On January 2:

• Blumkin Company common stock, par $1; 2,000 shares (market value, $3 per share).

• Note payable, $40,000, 12 percent due April 16, 2003 (principal plus interest).

• Balance of the invoice price to be paid in cash. The invoice allows for a 2 percent discount for cash paid by January 12.

On January 15:

• Blumkin Company paid the balance due.

Required: 1. What are the classifications of long-lived assets? Explain their differences. 2. 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: 3. Explain the basis you used for any questionable items.

Transcribed Image Text:

Date Assets Liabilities Stockholders' Equity