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The following are independent situations.

a. A new company is formed and shareholders invest $12,000 cash.
b. A company purchases for $18,000 cash a new truck that has a list price of $21,000.
c. A company pays stockholders a $10,000 cash dividend.
d. A company purchases a piece of land for $50,000 cash. An appraiser suggests that the value of this land is $55,000.
e. A company declares dividends of $1,100 to the shareholders but does not pay them yet; the company will pay these dividends in 60 days.
f. A company has to pay monthly wages of $5,600 to its employees; the company will pay them in two weeks.

Required:
1. Indicate the appropriate account titles, if any, affected in each of the preceding events. Consider what is received and what is given.
2 At what amount would you record the truck in (b)? The land in (h)? What measurement principle are you applying?
3. For (c), what accounting concept did you apply? For (J), what accounting concept did you apply?

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Answer:

1. Indication of the appropriate account titles:

a. Cash ($12,000) is received, Common Stock ($12,000) is given.

b. Truck ($18,000) is received, Cash )$18,000) is given.

c. Dividend ($10,000) is incurred, Cash ($10,000) is given.

d. Land ($50,000) is received, Cash ($50,000) is given.

e. Dividend ($1,100) is incurred, Dividend Payable ($1,100) will be given.

f. Wages ($5,600) are incurred, Wages Payable ($5,600) will be given.

2. Truck will be record at $18,000.

b. Land in d will be recorded at $50,000.

The measurement principle being applied is the cost basis.

3. The accrual concept is applied for 'c.'

The accrual concept is applied for 'f' also.

Explanation:

Purchased assets are recognized at cost.  This is the amount paid for the acquisition of the asset.  The value of the asset may vary after the initial recognition.  This is when the fair value of the asset is considered.  The purpose is to recognize assets at the values they be sold or bought in the market.

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