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Lease Classification, Considering Firm Guidance (Issues Memo) Facts: On 1/1/20X1, Investor, Inc. ("Lessee") signed a Lease...
Lease Classification, Considering Firm Guidance (Issues Memo)
Facts: On 1/1/20X1, Investor, Inc. ("Lessee") signed a Lease Agreement with Developer Inc. ("Landlord") to lease Landlord's newly constructed hotel located at 15 Main St. in San Francisco, CA. The lease term is 20 years, and the estimated life of the building is 40 years. Lessee will occupy all 4 floors of the building. The lease includes renewal options, exercisable at the Landlord's option, to extend the contract term for three additional five-year terms. No purchase option is present in the contract. Lessee's monthly rental payments are $40,000 per month, plus a monthly supplemental rental cost based on Lessee's sales (1% of sales). From experience, Lessee estimates that 1% of its sales should approximate an additional $10,000 per month. As of 1/1/20X1, the appraised value of the building is $15 million. For simplicity, please ignore discounting in this example (use of present value calculations, rates implicit in the lease, etc.). There are no residual value guarantees present.
Assume that this arrangement is within the scope of lease accounting guidance. As needed to clarify areas of judgment, support your response with guidance from both the Codification and from EY's most recent Lease accounting guide book.
Solutions
ekkarill92 answered 6 months agoRelated Solutions
Journal Entries for a Capital Lease-Lessee On January 1, the lessee company signed an operating lease...
Journal Entries for a
Capital Lease-Lessee
On January 1, the
lessee company signed an operating lease contract. The lease
contract calls for $3,000 payments at the end of each year for 10
years. The rate implicit in the lease is 10%.
Assume that the lease
is to be accounted for as a capital lease. Also assume that the
leased asset is to be amortized over the 12-year asset life rather
than the 10-year lease term.
1. Make the journal
entries...
On January 1, Year 1, a lessee signed a five-year equipment lease with annual payments of...
On January 1, Year 1, a lessee signed a five-year equipment
lease with annual payments of $100,000 beginning December 31, Year
1. The lessee treated this transaction as a capital lease. The five
lease payments have a present value of $379,000 at January 1, Year
1, based on interest of 10%. What amount should the lessee report
as interest expense for the year ended December 31, Year 1?
Part 3: Lessee Entries: Capital Lease On January 1, 2018, Southern, Inc. signed a 10-year non-cancelable...
Part 3: Lessee Entries: Capital Lease
On January 1, 2018, Southern, Inc. signed a 10-year
non-cancelable lease for a machine. The terms of the lease called
for Southern to make annual payments of $17,240 at the beginning of
each year, starting January 1, 2018. The machine has an estimated
useful life of 12 years.
The machine reverts back to the lessor at the end of the lease
term. Southern uses the straight-line method of depreciation for
all of its plant...
Part 3: Lessee Entries: Capital Lease On January 1, 2018, Southern, Inc. signed a 10-year non-cancelable...
Part 3: Lessee Entries: Capital Lease
On January 1, 2018, Southern, Inc. signed a 10-year
non-cancelable lease for a machine. The terms of the lease called
for Southern to make annual payments of $17,240 at the beginning of
each year, starting January 1, 2018. The machine has an estimated
useful life of 12 years.
The machine reverts back to the lessor at the end of the lease
term. Southern uses the straight-line method of depreciation for
all of its plant...
Part 3: Lessee Entries: Capital Lease On January 1, 2015, Southern, Inc. signed a 10-year non-cancelable...
Part 3: Lessee Entries: Capital Lease On January 1, 2015,
Southern, Inc. signed a 10-year non-cancelable lease for a machine.
The terms of the lease called for Southern to make annual payments
of $17,336 at the beginning of each year, starting January 1, 2015.
The machine has an estimated useful life of 12 years. The machine
reverts back to the lessor at the end of the lease term. Southern
uses the straight-line method of depreciation for all of its plant...
On January 1, Year 1, Dayden Company as lessee signed a five-year noncancelable equipment lease with...
On January 1, Year 1, Dayden Company as lessee signed a
five-year noncancelable equipment lease with annual payments of
$100,000 beginning December 31, Year 1. Dayden Company treated this
transaction as a capital lease. The five lease payments have a
present value of $379,000 at January 1, Year 1, based on interest
of 10%. What amount should Dayden Company report as interest
expense for the year ended December 31, Year 1?
On January 1, 2015, Harrison Company, a lessee, signed a five-year lease, which qualifies as a...
On January 1, 2015, Harrison Company, a lessee, signed a
five-year lease, which qualifies as a capital lease, requiring
annual lease payments of $15,000 for equipment. The payments are
made at year-end, and the first payments will be made at December
31, 2015. In addition, Harrison guarantees the residual value to be
$5,000 at the end of the lease term. Harrison correctly uses the
lessor’s implicit interest rate, which is 12%. The present value
factors for five periods at 12%...
Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1, 2020....
Mac Leasing Company (lessor) and Ash Corporation (lessee) signed
a four-year lease on January 1, 2020. The underlying asset has an
estimated life of six years, and the property reverts to Mac at the
end of the lease term. Lease payments of $34,577 are payable on
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which was known to Ash. The estimated residual value at the end of
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Abert, Inc. signed a five year lease of equipment on January 1,
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implicit interest rate. The lease agreement specifies five payments
of $20,000 beginning January 1, 2021, and at each December 31st
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When adjusting the books at December 31, 2021, what amount of
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On January 1, 20X1, Investor Inc. purchased 25% of the common shares of Associate Ltd. for $50,000
ICP 2
On January 1, 20X1, Investor Inc. purchased 25% of the common shares of Associate Ltd. for $50,000. It was determined that Investor had significant influence over the operating and financial policies of Associate. On the date of acquisition, the net assets of Associate totalled $180,000 (common shares of $100,000 and retained earnings of $80,000), and the carrying values of the identifiable assets and liabilities approximated their fair values. Both companies’ income tax rate is 20%.
The following information...
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