On January 1, 2019, Jerome Company signed a 12-year lease for a building. The entity has an option to renew the lease for an additional six-year period on or before January 1, 2023. During January 2022, the entity made substantial improvement to the building. The cost of the improvement was P4,500,000 with an estimated useful life of ten years. On December 31, 2022, the entity intended to exercise the renewal option. The entity has taken a full year depreciation on this improvement. On December 31, 2022, what is the carrying amount of the leasehold improvement? A. 4,500,000 B. 4,050,000 C. 4,200,000 D. 4,000,000

On January 1, 2019, Jerome Company signed a 12-year lease for a building. The entity has an option to renew the lease for an additional six-year period on or before January 1, 2023. During January 2022, the entity made substantial improvement to the building. The cost of the improvement was P4,500,000 with an estimated useful life of ten years. On December 31, 2022, the entity intended to exercise the renewal option. The entity has taken a full year depreciation on this improvement. On December 31, 2022, what is the carrying amount of the leasehold improvement? A. 4,500,000 B. 4,050,000 C. 4,200,000 D. 4,000,000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 14RE: On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment....

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Petes Petroleum, Inc., an SEC registrant with a calendar year-end, is in the business of constructing and operating offs] lore oil platforms. Petes Petroleum is required legally to dismantle and remove the platforms at the end of their useful lives, which is estimated to be 10 years. On January 1, 2019, Pete constructed and began operating an offshore oil platform off the coast of Brazil. The total capitalized cost to construct the platform was 3,700,000. In addition, while the future cost of dismantling the oil platform is difficult to estimate, Pete believes there is a 40% chance that the future cost will be 1,425,000, a 40% chance it will be 1,650,000, and a 20% chance that it will cost 2,125,000. The appropriate discount rate is 12%, and Pete uses the straight-line method of depreciation. Required: 1. Prepare the journal entries that Pete should record in 2019 related to the oil platform. 2. Prepare an amortization schedule for the asset retirement obligation. 3. Next Level Prepare a table showing the effect of accounting for the asset retirement obligation on assets, liabilities, shareholders equity, and net income relative to accounting for the associated costs at the end of the assets service life when the expenditure is made.
Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.