(a) A property lease includes a requirement that the premises are to be repainted every five years and the future cost is estimated at $100,000. The lessee prefers to spread the cost over the five years by charging $$20,000 against profits each year. Thereby creating a provision of $100,000 in five years’ time and affecting profits equally each year. Requirement: Was it correct for the lessee to provide for this cost? Explain your decision (5 marks) (b) A retail store has a policy of refunding purchases by dissatisfied customers, even though it is under no legal obligation. Its policy of making refunds is generally known. Requirements: Should a provision be made at year end (9 marks

(a) A property lease includes a requirement that the premises are to be repainted every five years and the future cost is estimated at $100,000. The lessee prefers to spread the cost over the five years by charging $$20,000 against profits each year. Thereby creating a provision of $100,000 in five years’ time and affecting profits equally each year. Requirement: Was it correct for the lessee to provide for this cost? Explain your decision (5 marks) (b) A retail store has a policy of refunding purchases by dissatisfied customers, even though it is under no legal obligation. Its policy of making refunds is generally known. Requirements: Should a provision be made at year end (9 marks

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion

Section: Chapter Questions

Problem 50P: LO.2, 4, 9 Dennis Harding is considering acquiring a new automobile that he will use 100% for...

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(a) A property lease includes a requirement that the premises are to be repaintedevery five years and the future cost is estimated at $100,000. The lessee prefers tospread the cost over the five years by charging $$20,000 against profits each year.Thereby creating a provision of $100,000 in five years’ time and affecting profitsequally each year.Requirement:Was it correct for the lessee to provide for this cost? Explain your decision(b) A retail store has a policy of refunding purchases by dissatisfied customers, eventhough it is under no legal obligation. Its policy of making refunds is generallyknown.Requirements:Should a provision be made at year end
A lessor acquired equipment for $82,100 and plans to lease it for a period of five years. If the equipment has no estimated residual value, what must be the annual lease charge for the lessor to earn 10 percent on the investment? Use Appendix D to answer the question. Round your answer to the nearest dollar. $ What would be the annual lease charge if the lessor sought to earn 8 percent? Use Appendix D to answer the question. Round your answer to the nearest dollar. $ If the equipment will have a residual value of $10,500, what lease payment will earn the lessor 10 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $
QUESTION 2 (a) A property lease includes a requirement that the premises are to be repaintedevery five years and the future cost is estimated at $100,000. The lessee prefers tospread the cost over the five years by charging $$20,000 against profits each year.Thereby creating a provision of $100,000 in five years’ time and affecting profitsequally each year. Requirement:Was it correct for the lessee to provide for this cost? Explain your decision(b) A retail store has a policy of refunding purchases by dissatisfied customers, eventhough it is under no legal obligation. Its policy of making refunds is generallyknown. Requirements:Should a provision be made at year end
Suppose that in addition to the $67,299 annual rental payments, Kimberly-Clark is also required to pay $5,000 for insurance costs each year on the building directly to the lessor, Sheffield Storage. How would this executory cost affect the initial measurement of the lease liability and right-of-use asset?
A property owner is evaluating the following alternatives for leasing space in his office building for the next five years: Gross lease. Rent will be $32 per square foot each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be $9 during the first year and increase by $1 per year thereafter. Calculate the effective rent to the owner (after expenses) for the lease using a 10 percent discount rate. Give typing answer with explanation and conclusion
A 44. Subject:- finance
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $17 per square foot with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10 percent discount rate.) b. The owner of ATRIUM believes that the base rent of $17 per square foot in (a) is too low and wants to raise that amount to $21 with the same $1 step-ups. However, now ATRIUM would provide ACME a $51,400 moving allowance and $114,000 in tenant Improvements (TIS). What would be the net present value of this alternative to ATRIUM? c. ACME Informs ATRIUM that it is willing to consider a $20 per square foot with the $1 annual step-ups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $12…
LO.2, 4, 9 Dennis Harding is considering acquiring a new automobile that he will use 100% for business. The purchase price of the automobile would be 48,500. If Dennis leased the car for five years, the lease payments would be 375 per month. Dennis will acquire the car on January 1, 2019. The inclusion dollar amounts from the IRS table for the next five years are 60, 130, 194, 232, and 268. Dennis wants to know the effect on his adjusted gross income of purchasing versus leasing the car for the next five years. He does not claim any available additional first-year depreciation. Write a letter to Dennis, and present your calculations. Then prepare a memo for the tax files on these matters. Denniss address is 150 Avenue I, Memphis, TN 38112.
1 A lessor has designed and built equipment based on the lessee specifications for molding unique plastic parts that will only be used by the lessee. After being built, the equipment will have a fair value of $200,000. The lessee has agreed to the following terms: • Lease agreement is for ten-year period • Equipment will revert back to lessor at the end of lease • Fixed payments of $10,000 will be paid annually, providing a present value of $77,217 at 5% interest • The equipment is expected to have a 25-year useful life and no residual value Based on this information, the lessee determined the lease should be classified as a finance lease. Which classification test was used to determine this assignment? O Purchase option O Alternative use ○ Lease term O Present value NEXT > BOOKMARK
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1 step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year. If ATRIUM…
1) Turquoise Inc. leased a large machine from Teal Co for four years. The lease contract provided that at the end of the term of the lease Turquoise may opt to purchase the machine for an amount significantly less than its fair value to be, and it is highly probable that Turquoise would purchase it. The machine is estimated to have two additional years of economic use after the purchase. How would Turquoise figure how much to amortize its right-of-use asset? A Lease expense minus interest on the initial carrying value of the lease liability B Lease expense minus interest on the current carrying value of the lease liability C Initial carrying value of the lease liability divided by six years D Initial carrying value of the lease liability divided by four years 2) As of December 31, 2024, Maroon Inc. had 50,000 shares of its common stock outstanding and reported net income for the year $350,000. Maroon also had 4,000 stock warrants outstanding, allowing the purchase of 10 shares each at…
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $10 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $10 PSF in (a) is too low and wants to raise that amount to $14 with the same $1 step-ups. However, now ATRIUM would provide ACME a $52,800 moving allowance and $128,000 in tenant improvements (TIs). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $13 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $5 PSF for 20,000 SF per year. If…