Identifying Lease and Nonlease Components. Deane Company leases office space from Blossom Building Associates for a term of 20 years in order to expand its operations into the region of the state. The office space includes the use of office equipment and computer equipment. In addition, Blossom will provide maintenance of all items of equipment included in the agreement and basic repairs and maintenance of the office as needed (e.g., air conditioning, cleaning services, and elevator repairs). The maintenance is included in the annual lease payments. How many lease components are included in the contract and specifically, what are they?
Want to see the full answer?
Check out a sample textbook solutionChapter 18 Solutions
Intermediate Accounting
Additional Business Textbook Solutions
Managerial Accounting
Fundamentals Of Financial Accounting
Financial Accounting, Student Value Edition (5th Edition)
Financial Accounting (11th Edition)
Cost Accounting (15th Edition)
Principles Of Taxation For Business And Investment Planning 2020 Edition
- 1. Clavel County leases an office building with a remaining economic life of 20 years. The fair market value of the building is $6 million. Annual lease payments are agreed at $523,107, based on a 6 percent interest rate. The lease meets the conditions for a capital lease.Record the lease and the first year’s interest payment (a) In a governmental fund (b) In the government-wide statements 2. Should the office building be depreciated? If so, how and where should depreciation be recorded? 3. Suppose the lease did not meet the conditions for a capital lease. How and where should the lease be recorded? Should the office building be depreciated? If so, how and where should depreciation be reported?arrow_forwardRainy August Afternoon Co. (RAA) enters into a service concession arrangement whereby RAA undertakes to build a public infrastructure, operate that infrastructure over a specified period, and thereafter transfer it to the government (the grantor). In addition, RAA is obligated to recondition the infrastructure a year before it is handed over to the government. This is regardless of the infrastructure’s condition and level of usage. In return, the government promises to pay RAA a fixed amount of cash plus interest in each year during the operation period. During the construction period, RAA recognizes an asset that is reported in the financial statements as contract asset. receivable (a financial asset). intangible asset. property, plant and equipment.arrow_forwardRainy August Afternoon Co. (RAA) enters into a service concession arrangement whereby RAA undertakes to build a public infrastructure, operate that infrastructure over a specified period, and thereafter transfer it to the government (the grantor). In addition, RAA is obligated to recondition the infrastructure a year before it is handed over to the government. This is regardless of the infrastructure’s condition and level of usage. In return, the government promises to pay RAA a fixed amount of cash plus interest in each year during the operation period. During the construction period, RAA recognizes an asset that is reported in the financial statements as a. contract asset. b. receivable (a financial asset). c. intangible asset. d. property, plant and equipment. If the promise to grant a license is distinct and that the license provides the customer the “right to access” the entity’s intellectual property, how is revenue recognized from the initial fee in the contract? a. in full…arrow_forward
- On January 1, 2016, Bise Company signed an eight-year lease for office space. The entity has the option to renew the lease for an additional six-year period on or before January 1, 2022. In early part of 2018, the entity incurred the following costs: Improvements to the leased premises with useful life of 10 years, P5,400,000 Office furniture and equipment with useful life of 8 years, P2,400,000 Moveable assembly line equipment with useful life of 5 years, P1,800,000 On December 31, 2018, Bise’s intention as to the exercise of the renewal option is uncertain. A full depreciation of leasehold improvements is taken in the year of acquisition. On December 31, 2018, what amount of accumulated depreciation of leasehold improvements should be reported?arrow_forwardAssume that a town leases equipment on a capital lease. The present value of the leased equipment is $65,000. The city, subsequently, pays $6,500 on the lease, $3,900 of which is designated as interest and the remainder to a reduction of the lease obligation: Required: Prepare the journal entry to record the acquisition of equipment via lease and the subsequent payment.arrow_forwardIn 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2025, Sheffield took possession of the leased property. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Advance rental payments of $772,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $430,000 are due on January 1 for each of the last 10 years of the lease term. Sheffield has an option to purchase all the leased facilities for $1 on December 31, 2044. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was pproximately $7,601,000. If the company had borrowed the money to purchase the facilities, it would have had to pay 9% interest. Compute the present value of lease vs purchase.…arrow_forward
- A telecommunications operator (BarleyCo) enters into an indefeasible rights of use (IRU) contract with TomCo (the incumbent telecommunications operator) for a dark fibre route between two cities. The agreement is for a term of 20 years, which is the expected service life of the cable. The arrangement specifies exclusive use of a distinct fibre within the TomCo fibre cable, and BarleyCo is responsible for the installation of transmission equipment in TomCo’s buildings in order to light the fibre. TomCo has the right to swap BarleyCo over to an alternative fibre, but only for reasons of repair, maintenance or malfunction, in which case it must compensate BarleyCo for financial loss. In addition to a single up-front payment, the contract provides for TomCo to charge BarleyCo for a share of maintenance costs and for space, power and cooling within the TomCo buildings. BarleyCo is responsible for the installation and maintenance of its transmission equipment and is free to upgrade that…arrow_forwardIsmail Construction enters into a contract to build a 5 story office building. Ismail is responsible for the overall management of the project, engineering, site clearance, foundation, and construction of the building. How many performance obligations are in this contract? Explain your answer.arrow_forwardOn January 1, 2023, Carla Vista Leasing Inc., a lessor that uses IFRS, signed an agreement with Rock River Inc., a lessee, for the use of a compression system. The system cost $426,000 and Carla Vista purchased it from Manufacturing Solutions Ltd. specifically for Rock River. Annual payments are made each January 1 by Rock River. In addition to making the lease payment, Rock River also reimburses Carla Vista $4,700 each January 1 for a portion of the repairs and maintenance expenditures, which cost Carla Vista a total of $6,300 per year. At the end of the five-year agreement, the compression equipment will revert to Carla Vista and is expected to have a residual value of $27,200, which is not guaranteed. Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs that have not yet been incurred by Carla Vista. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN…arrow_forward
- On January 1, 2021, Winn Heat Transfer leased office space under a three-year lease agreement. The arrangement specified three annual rent payments of $80,000 each, beginning January 1, 2021, the inception of the lease, and at each January 1 through 2023. Winn also paid a $96,000 advance payment at the inception of the lease in addition to the first $80,000 rent payment. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. The implicit rate of the lease is 8% per annum, which is also Winn’s incremental borrowing rate. Required: Prepare the appropriate entries for Winn Heat Transfer from the inception of the lease through the end of 2021. Winn’s financial year is the calendar year. Winn uses straight-line depreciation.arrow_forwardRespond to the requirements in each situation. Instructions a. On January 1, 2020, Zarle Inc. sold computer equipment to Daniell Co. The sales price of the equipment was $520,000 and its carrying amount is $400,000. Record any journal entries necessary for Zarle from the sale of the computer equipment in 2020. b. Use the information from part a. Assume that, on the same day the sale occurred, Zarle enters into an agreement to lease the equipment from Daniell for 10 years with annual lease payments of $67,342.42 at the end of each year, beginning on December 31, 2020. If Zarle has an incremental borrowing rate of 5% and the equipment has an economic useful life of 10 years, record any journal entries necessary for Zarle from the sale and leaseback of computer equipment in 2020. c. Use the information from part b. Now, instead of 10 years, the lease term is only 3 years with annual lease payments of $67,342.42 at the beginning of each year. Record any journal entries necessary…arrow_forwardAccounting SBITAS are accounted for similarly to leases. A city signs a three- year licensing agreement with a soft-ware company for use of a payroll management system in its electrical utility fund. Annual charges are $10,000 per year. It is the policy of the city to use a discount rate of 6 percent to value right- to- use assets when an interest rate is not explicitly stated in a lease or comparable agreement. It also depreciates all capital and similar assets on a straight- line basis. The subscription period runs from January 1, 20X1 through December 31, 20X3, with payment due on January 1 of each of the three years. 1. Prepare a journal entries to record the start of the licensing agreement on January 1, 20X1 in its electrical utility fund (a proprietary fund) as well as the first payment of $10,000. 2. Prepare an entry to record an appropriate journal entry on December 31, 20X1. 3. Prepare an entry to record the second payment of $10,000 on January 1, 20X2.arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage