fat2 - Andrew Chase Accounting Theory II November 2, 2009...

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Andrew Chase Accounting Theory II November 2, 2009 Case II In Provision 1, the costs or potential costs associated with the payment of $500,000 to Big Bear Power’s legal counsel in connection with negotiating the lease agreement should not be included in “minimum lease payments.” This cost should be recognized as an operating expense. However, the costs associated with the payment of $1,000,000 in legal fees incurred by Goliath Co. should be included in “minimum lease payments.” The legal fees incurred by the lessee are not included, while the legal fees incurred by the lessor are included. The fees incurred by the lessor are considered initial direct costs. According to FASB Statement No. 13, Accounting for Leases, initial direct costs are defined as: those incremental direct costs incurred by the lessor in negotiating and consummating leasing transactions (e.g., commissions and legal fees). In Provision 2, the provision that requires Big Bear Power to pay a penalty if Big
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This note was uploaded on 12/07/2009 for the course ACCT 5521 taught by Professor Englese during the Spring '08 term at Fairleigh Dickinson.

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fat2 - Andrew Chase Accounting Theory II November 2, 2009...

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