Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 15, Problem 15.3DMP
Ethics Case 15–3
Leasehold improvements
• LO15–3
American Movieplex, a large movie theater chain, leases most of its theater facilities. In conjunction with recent operating leases, the company spent $28 million for seats and carpeting. The question being discussed over breakfast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The company controller, Sarah Keene, was surprised by the suggestion of Larry Person, her new assistant.
Keene: Why 25 years? We’ve never
Person: I noticed that in my review of back records. But during our expansion to the Midwest, we don’t need expenses to be any higher than necessary.
Keene: But isn’t that a pretty rosy estimate of these assets’ actual life? Trade publications show an average depreciation period of 12 years.
Required:
1. How would increasing the depreciation period affect American Movieplex’s earnings?
2. Does revising the estimate pose an ethical dilemma?
3. Who would be affected if Person’s suggestion is followed?
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Students have asked these similar questions
Problem 27-06 MACRS Depreciation and Leasing [LO3]
You work for a nuclear research laboratory that is contemplating leasing a diagnostic
scanner (leasing is a very common practice with expensive, high-tech equipment). The
scanner costs $6,300,000. Because of radiation contamination, it actually will be
completely valueless in four years. You can lease it for $1,795,000 per year for four
years. Assume that the tax rate is 25 percent. You can borrow at 6 percent before taxes.
Assume that the scanner will be depreciated as three-year property under MACRS. Use
Table 10.7
a. What is the NAL of the lease? (A negative answer should be indicated by a minus.
sign. Do not round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
b. Should you lease or buy?
a.
b.
NAL
Problem 12-33 Replacement decision analysis (LO12-4] new
Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into
the five-year category for MACRS depreciation and can currently be sold for $34,800. A new piece of equipment will cost $230,000. It
also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added
cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using
the formula and financial calculator methods.
Cash
Year
Savings
$ 61,000
1
51,000
3
49,000
47,000
44,000
33,000
4
The firm's tax rate is 25 percent and the cost of capital is 10 percent.
Exercise 11.18
BUILDING COSTS
** Chua Ltd has acquired a new building. Which of the following items should be included in the cost of the
building?
(a) Stamp duty
(b) Real estate agent's fees
(c) Architect's fees for drawings for internal adjustments to the building to be made before use
(d) Interest on the bank loan to acquire the building, and an application fee to the bank to get the loan,
which is secured on the building
(e) Cost of changing the name on the building
(f) Cost of changing the parking bays
(g) Cost of refurbishing the lobby to the building to attract customers and make it more user friendly
Chapter 15 Solutions
Intermediate Accounting, 10 Ed
Ch. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - Prob. 15.4QCh. 15 - A lessee should classify a lease transaction as a...Ch. 15 - Lukawitz Industries leased non-specialized...Ch. 15 - In accounting for a finance lease/sales-type...Ch. 15 - What is selling profit on a sales-type lease? How...Ch. 15 - At the beginning of an operating lease, the lessee...Ch. 15 - At the beginning of an operating lease, the lessor...Ch. 15 - In accounting for an operating lease, how are the...
Ch. 15 - Briefly describe the conceptual basis for asset...Ch. 15 - In a financing lease, front loading of lease...Ch. 15 - The discount rate influences virtually every...Ch. 15 - A lease that has a lease term (including any...Ch. 15 - A lease might specify that lease payments may be...Ch. 15 - What is a purchase option? How does it affect...Ch. 15 - A six-year lease can be renewed for two additional...Ch. 15 - Culinary Creations leased kitchen equipment under...Ch. 15 - What situations cause us to remeasure a lease...Ch. 15 - Prob. 15.21QCh. 15 - Compare the way a purchase option that is...Ch. 15 - What nonlease costs might be included as part of...Ch. 15 - The lessors initial direct costs often are...Ch. 15 - When are initial direct costs recognized in an...Ch. 15 - Prob. 15.26QCh. 15 - Prob. 15.27QCh. 15 - Prob. 15.28QCh. 15 - When a company sells an asset and simultaneously...Ch. 15 - Prob. 15.30QCh. 15 - Lease classification LO151 (Note: Brief Exercises...Ch. 15 - Lease classification LO151, LO152 Corinth Co....Ch. 15 - Lessee and lessor; calculate interest;...Ch. 15 - Finance lease; lessee; balance sheet effects ...Ch. 15 - Finance lease; lessee; income statement effects ...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Prob. 15.7BECh. 15 - Operating lease LO154 (Note: Brief Exercises 8...Ch. 15 - Operating lease LO154 At the beginning of its...Ch. 15 - Short-term lease LO155 King Cones leased ice...Ch. 15 - Uncertain lease term LO156 Java Hut leased a...Ch. 15 - Uncertain lease payments LO156 On January 1,...Ch. 15 - Purchase option; lessor; sales-type lease LO152,...Ch. 15 - Residual value; sales-type lease LO152, LO153,...Ch. 15 - Guarantee d residual value LO156 On January 1,...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lease classification LO151 Each of the four...Ch. 15 - Prob. 15.9ECh. 15 - Lessor calculation of annual lease payments;...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Calculation of annual lease payments; residual...Ch. 15 - Lease concepts; finance/sales-type leases;...Ch. 15 - Calculation of annual lease payments; purchase...Ch. 15 - Prob. 15.37ECh. 15 - Prob. 15.38ECh. 15 - Prob. 15.39ECh. 15 - Lessors initial direct costs; operating and...Ch. 15 - Research Case 151 FASB codification; locate and...Ch. 15 - Ethics Case 153 Leasehold improvements LO153...Ch. 15 - Communication Case 155 Wheres the gain? Appendix...Ch. 15 - Prob. 15.6DMPCh. 15 - Prob. 1CCTCCh. 15 - Prob. 2CCTC
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