Writing Assignment (Is It an Asset or Not?)
Hunter Company has developed a computerized machine to assist in the production of appliances. It is anticipated that the machine will do well in the marketplace; however, the company lacks the necessary capital to produce the machine. Rosalyn Finch, secretary treasurer of Hunter Company, has offered to transfer land to the company to be used as collateral for a bank loan. In exchange for the land transfer, Rosalyn will receive a 5-year employment contract and a percentage of any profits earned from sales of the new machine. The title to the land is to be transferred unconditionally. If Hunter defaults on the employment contract, a lump-sum cash settlement for lost wages will be paid to Rosalyn. The land transfer may be a good business move, but it raises a number of sticky accounting issues. Hunter’s controller has given you the task of writing a memo that summarizes the options available in accounting for the land transfer. Your memo should outline the arguments both for and against recording the land as an asset on Hunter’s books. Also discuss how the land should be valued if it is recorded as an asset.