Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 8, Problem 1.1AIC
To determine
Discuss the reason behind Corporation S for capitalizing and amortizing leasehold improvements, whether its policy yield high-quality accounting numbers, and the way in which Corporation S’s account for the leasehold improvement costs.
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Sam Ltd owns a piece of vacant land in Broadmeadows. A substantial number of factory owners establish their manufacturing plant in this location due to its accessibility and high affordability. The management of Sam Ltd wants to adopt fair value model to measure the land on 30 June 2021.
Which of the following information is most useful in assisting management in estimating the fair value of the land?
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Sam Ltd intends to lease out the land in the next financial year, and they believe they could receive an annual lease payment of $50,000.
A factory owner purchased a piece of vacant land near Broadmeadows for $1m to build a new factory plant on 21 May 2021.
The cost to build a new factory on a piece land in Broadmeadows is about $200,000.
A landowner sold a piece of vacant land in Southbank to a property developer for $1.05m on 21 May 2021.
A company decided to lease a food truck to promote sales across the country. The truck cost $65,000 and the company signed an irrevocable five-year lease. The company is trying to determine how to account for this asset. Which Financial Accounting Standards Board (FASB) guideline should the company use to report the truck?
Capitalize the lease only because its non-cancellable.
Capitalize the leased asset only if the company also capitalizes installment purchases.
Capitalize the lease because it is a fixed asset.
Capitalize the lease because it is long-term.
What is the maximum price you would be willing to pay for the business? If an investor group purchased the restaurant near the campus for $255, 867 and the fair value of the assets they acquired was $202,000, identify the account along with its balance, that is used to record the additional amount paid over the fair value of the assets.
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Financial Reporting, Financial Statement Analysis and Valuation
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- Part ILynbrook, Inc. is considering leasing a CAT Scan machine for its operations. As the Controller of Lynbrook, you have been asked to provide management with the lease information related to the CAT Scan. Lynbrook is considering leasing the machine from Capital Leasing, who in turn purchased the machine from the manufacturer, ScanHouse Corp. for $1,000,000. Required:Round your answers to the nearest whole dollar amounts.1. How should this lease be classified by Lynbrook and by Capital Leasing?2. Prepare appropriate entries for both Lynbrook and Capital Leasing from the beginning of the lease through the second rental payment on April 1, 2020. Depreciation and amortization are recorded at the end of each fiscal year (December 31).3. Assume Lynbrook leased the machine directly from the manufacturer, ScanHouse Corp., which produced the machine at a cost of $800,000. Prepare appropriate entries for ScanHouse from the beginning of the lease through the second rental payment on April 1,…arrow_forwardSuppose that Demont has been given a summer job as an intern at Isaac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. Cost Product Cost/Period Cost1. Depreciation on chairs and tables in the factory lunchroom 2. The wages of the receptionist in the administrative offices 3. Cost of leasing the corporate jet used by the company's executives 4. The cost of renting rooms at a Florida resort for the annual sales conference 5. The cost of packaging the company's productarrow_forwardCitation Builders, Incorporated, builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10−20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale. During 2024, Citation began construction of an office building for Altamont Corporation. The total contract price is $23 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2024 2025 2026 Costs incurred during…arrow_forward
- Identify whether the statement is True or False. Replacement value is an estimate of the cost of reproducing, creating, developing, or manufacturing a similar asset. * The replacement value method is superior to book value as it gives an indication of the true value of the firm as of the valuation date. * Borrowings that are contracted to be paid after 24 months are classified as current liabilities. * Brownfield investment is the term used to describe businesses that are starting from scratch. * Replacement cost is the cost of similar assets that have the nearest equivalent value as of the valuation date. * An asset has been defined by the industry as transactions that would yield future economic benefits as a result of past transactions. * Equipment is classified as non-current assets. *arrow_forwardFinley Co. is looking for a new office location and sees a building with a fair value of $400,000. Finley also notices that much of the equipment in the existing building would be useful to its own operations. Finley estimates the fair value of the equipment to be $80,000. Finley offers to buy both the building and the equipment for $450,000, and the offer is accepted. Determine the amounts Finley should record in the separate accounts for building and equipment.arrow_forwardThe lessee compares the present value of owning the equipment with the present value of leasing it. Now put yourself in the lessor’s shoes. In a few sentences, how should you analyze the decision to write or not to write the lease?arrow_forward
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