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Cause a Scene, a large movie theater chain, leases its theater facilities. You are the corporate controller. In conjunction with recent operating leases, the company

Cause a Scene, a large movie theater chain, leases its theater facilities. You are the corporate controller.

In conjunction with recent operating leases, the company recently paid an additional $36 million for seats and carpeting. The question at hand is the length of the depreciation period for these assets. The following information is available:

  • The operating leases average 15-year terms
  • A corporate accountant on staff suggests depreciating these assets over a period of 25 years, citing increased costs related to an expansion into the Pacific Northwest
  • Recent trade publications indicate the typical useful life for similar assets is 12 years

What is your recommendation for the depreciation period for these assets (the seats and carpeting)?

*****

Prepare a professional memo:

  1. Explaining what these assets (the seats and carpeting) are; what they represent in conjunction with the operating leases of the facilities
  2. Providing your recommendation for the depreciation period for these assets (the seats and carpeting), citing the appropriate guidance in the FASBs Accounting Standards Codification
  3. Explaining the accounting effects of depreciating these assets (the seats and carpeting) over the other suggested time frames (back up your conclusions with numerical data)

Note: The guidance for leases has changed significantly in recent years. The appropriate guidance for SEC filers beginning January of 2019 is found in ASC 842 Leases.

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