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Scanlon Company question




Question;1. The following information is available from the comparative;balance sheets and related income statement of the Scanlon Company for the year;ended December 31, Year 7. (12 points);December 31;December 31;Year 6;Year 7;Present value of;lease obligation;$2,040,508.60;$1,862,939.10;Leasehold;(net of accumulated amortization);$1,987,224.30;$1,766,421.60;Interest;expense on lease obligation for Year 7;$ 122,430.52;The company has only one lease contract outstanding, which it;entered into on January 1, Year 6. The contract called for 10 equal lease;payments commencing on December 31, Year 6.;Required;a.;What was the interest rate used to value the lease?;b.;What is the annual lease payment?;c.;What was the present value of the lease obligation on January 1;Year 6?;d.;What was the amortization expense for Year 6?;2.;KLM;Company, as tenant, acquired for $600,000, paid in a single amount, the right;to use an entire office building for the next ten years. KLM expects to rent;out the floors in the building to various commercial tenants. As tenant, KLM;accounts for its lease as a capital lease amortizing the leasehold asset on a;straight-line basis over ten years. KLM, as landlord, signed operating leases;with the tenants for all of the rentable space. The rents total $150,000;received at the end of each year for the next ten years, $1.5 million in total.;(12 points);Required;a.;Under current GAAP, can KLM treat the same property as a capital;lease and an operating lease?;b.;What is the book value of this property after two years?;Assume, independent of your answer to the preceding question;that the book value of the property after two years is $400,000. On that;date, some of the tenants go bankrupt and KLM believes it will be unable to;rent their now-vacant space, which will remain empty for the remaining eight;years. The fair market value of the remaining leasehold with still-solvent;rent-paying tenants is $300,000.;c.;If the remaining tenants will pay $800,000 in total, with present;value $310,000, what entry, if any, will KLM make?;d.;If the remaining tenants will pay $320,000 in total, with;present value $290,000, what entry, if any, will KLM make?


Paper#49779 | Written in 18-Jul-2015

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