number 4 is this - Here Ancient National Bank’s lease...

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CA24-2 Item 3 A competitive development like this is usually considered to be the type of event that provides evidence with respect to a non existing condition at the date of the balance sheet. The auditor might see that Rem’s poor competitive situation was there at the end of the year. The development should be disclosed to users of the financial statements since the economic recoverability of the inventory and the new plant is in doubt. The economic effects might not be determined and the usual disclosure will be shown in the financial statements. If the present recoverable value of the plant can be determined, Rem should have a disclosure of the company’s revised financial position, considering that this event is concluded to be evidence that the conditions did not exist at the year end, in a pro- forma balance sheet. Item 4
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Unformatted text preview: Here, Ancient National Bank’s lease agreement will meet the criteria for a capital lease because it contains a bargain purchase option. Unless the fair value of the building is larger than its $2,400,000 cost, the present value of the lease payments most likely goes over 90% of the fair value of the building. So the lessee should capitalize the leased asset and the related obligation in the balance sheet at the correct discounted amount of the future rental payments under this lease agreement. The income statement should contain a charge, plus an interest charge for depreciation of the leased asset. Also the lessee must disclose a few things like the gross amount of the leased asset and the accumulated depreciation, a general description of the lease arrangement, and the existence of the terms of the purchase option....
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