Book 1 - Chapter 2

Reinforcement Problems
LG	2-1. An asset is property that is owned by a business. Every asset must be able to provide a future benefit to the business to which it belongs. The asset must be owned by the business as a result of a past event.

2-2. The everyday, nontechnical meaning of the word “asset” is anything that has a beneficial
quality or trait.

2-3. The two essential qualities of a business asset are: (a) It must provide future benefits to a
business, and (b) it must be owned as a result of a past event.

LG	2-4. Your answer will be different from this answer. Nevertheless, notice how the everyday example of an asset excludes some of the necessary qualities of a business asset, and the business example includes all of the necessary qualities. You should look for this in your own examples.
	Everyday Asset: “I love my bicycle! I found it sometime last summer in a park (a past event), so I did not pay anything for it, and I’m not even sure what it would cost. It looks old, is rusting, is slow, and has only one speed, but people like to look at it and ask questions because it’s an antique! That’s how they become my friends. And the bike gives me pleasure because while I slooowwwly pedal it, I notice more flowers and trees. And by doing all this pedaling, I have lost eight pounds.”
		In this story, the bicycle provides the benefits of pleasure and a way to make new friends, but these are not business benefits. Also, we cannot be certain of who really owns the bicycle. There was never any kind of dollar value transaction that took place to acquire it, nor do we know what date it was acquired.
	Business Asset: “We use a bicycle in our business to provide fast, inner-city delivery of documents. Our business bought the bicycle on August 10 for $800. The employee assigned to use the bicycle can make deliveries in half the time of a professional courier service.”
		In this story, both qualities of a business asset are set forth: the business benefits it provides (speedy delivery); it is owned by the business as the result of a past event. Notice also that there will be objective evidence and an identifiable historical cost.

2-5.

Bussiness item	It is …		Missing quality
	an asset	not an asset	Future benefits	Owned as a result of a past event
a. The supervisors of a business
b. Office supplies
c. Cash in the checking account

Learning Goal 2

SOLUTIONS

Learning Goal 2: Define and Identify Assets

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