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Accounting 5102 Codification Research System Assignment

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Accounting 5102

Codification Research System Assignment

Spring 2017

Tranter

 

This assignment consists of two independent situations that require students to research Lease Accounting (Topic 842) in the Financial Accounting Standards Board’s (FASB) Codification.

When answering the questions in the two situations use the rules of Accounting Standards Update (ASU) No. 2016-02 dated February 2016, which becomes effective during 2019.  Do not use existing lease rules to answer the questions.

In each of the two situations, fully explain your calculations to Winslow’s management.  This is a writing assignment as well as a research assignment.  No credit will be given for calculations that are not fully explained.  (This is not just a homework problem that is typed).

Your assignment must be typed, double-spaced, and presented in a college-level writing style.  Style and grammatical errors will be penalized up to 20 points (see the grading rubric on moodle).

Papers are due in class on the date indicated in the syllabus.  Late papers will be penalized, and papers will not be accepted via email.

Use the present value tables provided in the assignment whenever present values are needed.

Winslow records the lease right (right-of-use asset) and lease liability directly on its balance sheet (rather than use footnote disclosure).

The implicit rate in the leases is not readily determined.

 

Present Value of $1

 

Periods

 

2%

 

3%

 

4%

 

5%

 

6%

 

8%

 

10%

 

12%

1

 

.98

 

.97

 

.96

 

.95

 

.94

 

.93

 

.91

 

.89

2

 

.96

 

.94

 

.92

 

.91

 

.89

 

.86

 

.83

 

.80

3

 

.94

 

.92

 

.89

 

.86

 

.84

 

.79

 

.75

 

.71

4

 

.92

 

.89

 

.85

 

.82

 

.79

 

.74

 

.68

 

.64

5

 

.91

 

.86

 

.82

 

.78

 

.75

 

.68

 

.62

 

.56

6

 

.89

 

.84

 

.79

 

.75

 

.70

 

.63

 

.56

 

.50

8

 

.85

 

.79

 

.73

 

.68

 

.63

 

.54

 

.47

 

.40

10

 

.82

 

.74

 

.68

 

.61

 

.56

 

.46

 

.38

 

.32

16

 

.72

 

.62

 

.53

 

.46

 

.39

 

.29

 

.21

 

.16

20

 

.67

 

.55

 

.45

 

.38

 

.31

 

.21

 

.15

 

.10

 

 

Present Value of Annuity of $1

 

Periods

 

2%

 

3%

 

4%

 

5%

 

6%

 

8%

 

10%

 

12%

1

 

.98

 

.97

 

.96

 

.95

 

.94

 

.93

 

.91

 

.89

2

 

1.94

 

1.91

 

1.88

 

1.86

 

1.83

 

1.79

 

1.74

 

1.69

3

 

2.88

 

2.83

 

2.77

 

2.72

 

2.67

 

2.58

 

2.49

 

2.40

4

 

3.80

 

3.72

 

3.62

 

3.54

 

3.46

 

3.32

 

3.17

 

3.04

5

 

4.71

 

4.58

 

4.44

 

4.32

 

4.21

 

4.00

 

3.80

 

3.60

6

 

5.60

 

5.42

 

5.23

 

5.07

 

4.91

 

4.63

 

4.35

 

4.10

8

 

7.33

 

7.02

 

6.73

 

6.46

 

6.21

 

5.75

 

5.33

 

4.96

10

 

8.98

 

8.53

 

8.11

 

7.72

 

7.36

 

6.71

 

6.14

 

5.65

16

 

13.57

 

12.56

 

11.65

 

10.84

 

10.10

 

8.85

 

7.82

 

6.98

20

 

16.35

 

14.88

 

13.59

 

12.46

 

11.47

 

9.82

 

8.51

 

7.47

 

Use the tables provided whenever present values are needed.

Situation 1:

On January 1, 20x1, Winslow signed a lease giving it the right to use a drop forge owned by Port Angeles for 2,000 hours per year for 8 years.

The lease requires Winslow to pay $20,000 per year on December 31, 20x1-20x4 and $26,000 per year on December 31, 20x5-20x8.

The drop forge has a life of 20 years and a fair value of $200,000.

Winslow’s incremental rate was 8% on January 1, 20x1, and 10% on January 1, 20x5.

Winslow and Port Angeles modified the lease on January 1, 20x5.  Under the modified lease terms Winslow will pay Port Angeles $15,000 per year on December 31, 20x5-20x8 to use the drop forge for 1,200 hours per year.

1.         Prepare the entry needed by Winslow to record the lease modification on

January 1, 20x5.

Situation 2:

On January 1, 20x1,Winslow leased equipment from Queen Anne.  The ten-year lease requires Winslow to pay Queen Anne $12,000 annually on December 31, 20x1-20x10.

Winslow’s incremental borrowing rate was 8% on January 1, 20x1, and 6% on December 31, 20x2, (January 1, 20x3).

On January 1, 20x1, Winslow incurred the following costs related to the lease of the equipment:

 

Broker’s commission to find asset

$9,000

External legal fees to write lease contract

4,000

Payment to current lessee to surrender asset for lease to Winslow

 

7,000

 

$20,000

 

The leased equipment has a useful life of 30 years.

On December 31, 20x2, Winslow tested the asset for impairment when there was a significant decrease in the usage of the asset.  Since the net future cash flows were less than the fair value of the asset the asset was impaired.  (The equipment’s fair value was $60,000).

1.         Prepare the entry needed by Winslow to record the impairment on December 31, 20x2.

2.         Prepare all entries needed by Winslow to record the lease during 20x3.

 

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