Bam Year 2

1. We noticed that the cost of leasing trucks has decreased to $22,780 for this year. Is this because you purchased the two new trucks? We also noticed that the lease payment on your new building is $38,000, which is much higher than you paid for your location last year. We are assuming you entered into a long-term lease when you moved, so we need some additional information from you to help us determine if this is an operating or a finance lease. How long is the lease? Will you own the building when the lease ends? Can you provide us with the fair value of the building and also the interest rate used to determine the annual payments? We also need to know the useful life of the building.

Issue(s): They no longer lease the truck since they purchased and retooled the new ones. That $22,780 was incurred to rent trucks at the $150 per day rate until they got the new trucks retooled. They also agree that the $38,000 is a little high but thats the agreement that Rick and Cain negotiated. They settled on a 4.75% interest rate and a 10 year lease term. They only rent a little over half of the building so they will not own at the end of the 10 years. They are pretty sure the building is worth well over $1 million. Its a relatively new building so its not going to wear out anytime soon. Certainly not within the next 50 years. They have a great location there and the real estate prices just kept going up in their area. They recorded the lease payments in the journal entries, and even allocated it between the shop and the office spaces. The issue is, we need to properly account for and disclose the information for the lease arrangements in the financial statements. We also need to know if the lease is operating or finance because it affects the accounting treatments and how the lease payments are recognized and reported in financial statements.

1. Analysis: Apply the facts of the case study to the rule and provide an in-depth analysis based on the issue. Your analysis should also include supporting schedules, calculations, and/or correcting journal entries.
2. Conclusion: State your conclusion(s) based on the results of your analysis and indicate any changes to the financial statements and disclosure notes resulting from the rule.

What is the Analysis and conclusion?