Kaloyan Kolev BUS 220 E Case

Kaloyan Kolev BUS 220 E Case - Kaloyan Kolev Introduction...

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Unformatted text preview: Kaloyan Kolev Introduction to Accounting BUS 220 E BonneSante S.A. Case Question 1 Illustration #1 According to the Exposure Drafts proposals lessees like Bonne Sante will have to recognize as asset, representing the right to use a leased asset, a liability, representing the obligation to make lease payments to the lessor, the cost of amortization of the asset, interest expense, contingent rentals and residual value guarantees as part of their lease liability. In Illustration 1 at the end of the lease period for the truck the company would have to account for it by debiting the following accounts: Accounts Payable (Lease obligation), Interest Expense, Amortization Expense and Contingent Rentals. We debit Accounts Payable, because the company will pay all of its liabilities by the end of the lease term. At the end of this period the company would have to credit the following accounts: Cash and Right-of-use asset. The following is an example of the according journal entry, assuming that the contingent rentals are 8% of the lessees revenue and that the truck is fully amortized at the end of the lease term): Debit Credit Accounts Payable (Lease Obligation) 9,60 0 Interest Expense 48 0 Amortization Expense 9,600 Contingent Rentals 76 8 Cash 10,84 8 Right-of-use asset 9,60 0 Illustration #2 Bonne Sante will have to account for the leased retail outlet by debiting the following accounts: Accounts Payable (Lease obligation), Interest Expense, Amortization Expense and Initial Direct Costs Expense. There are no Contingent rentals in this case. At the end of this period the company would have to credit the following accounts: Cash and Right-of-use asset. The Exposure Drafts proposal defines the lease period as the longest term that is more likely than not to occur. There is a 60 % chance that the term will be 6 years, which is the longest term more likely than not to occur. Therefore the lease term is 6 years. The following is an example of the according journal entry, assuming that the outlet is fully amortized at the end of the lease term): Debit Credit Accounts Payable (Lease Obligation) 300,00 0 Interest Expense 15,00 0 Amortization Expense 300,00 0 Initial Direct Costs Expense 6,00 0 Cash 321,000 Right-of-use asset 300,000 Illustration #3 Bonne Sante will have to account for the leased retail outlet by debiting the following accounts: Accounts Payable (Lease obligation), Interest Expense and Amortization Expense. At accounts: Accounts Payable (Lease obligation), Interest Expense and Amortization Expense....
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This note was uploaded on 01/10/2012 for the course BUS 220 taught by Professor Feeney during the Fall '11 term at American University in Bulgaria.

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Kaloyan Kolev BUS 220 E Case - Kaloyan Kolev Introduction...

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