Question
Cheese Ahead Frankie's Homemade Cheese Shop (Frankie's) signed an advertising agreement with Simmons Boards (Owner) for billboard advertising rights along Route 33 in the town
Cheese Ahead Frankie's Homemade Cheese Shop ("Frankie's") signed an advertising agreement with Simmons
Boards ("Owner") for billboard advertising rights along Route 33 in the town of Hampton. Frankie's has the right
to select and display advertising copy on billboard panels numbered 10 and 12 (panel numbers correspond to designated billboard locations) for a 3-year period from Jan. 1, 20X1, to Dec. 31, 20X3. In consideration for these rights,
Frankie's agrees to pay $10,000 in year 1, $12,000 in year 2, and $13,000 in year 3. Assume that Frankie's is required
to pay the annual fee on Jan. 1 of each contract year. Assuming Frankie's incremental borrowing rate is 5%, what are
the entries Frankie should record at inception of the contract, then at the end of years 1, 2, and 3?
Making the Cheese Refer to the previous case study. Now evaluate the entries that Simmons Boards should record
at inception of the advertising agreement with Frankie's, as well as at the end of each contract year?
More Cheese Frankie's Homemade Cheese Shop is expanding. The shops along Route 33 have been so successful
that Frankie's is building a new cheese superstore along Route 5 in a neighboring state. Frankie's parent company,
Dairy Joe Corp., is determining which of the following costs may be capitalized as part of the construction project.
Dairy Joe has asked you to draft a capitalization policy describing at what point, and which, costs can be capitalized
in a new-build construction project. Address whether the following costs are eligible for capitalization. Also, describe
other costs (beyond these) that should be capitalized.
a. Architect fees for design of the new store.
b. Labor and materials used in the construction project.
c. Dairy Joe's own, salaried project manager, who travels to the job site and oversees the construction project.
Assume the project manager stays in a hotel near the job site.
d. Preliminary site selectionlabor hours incurred by the internal project manager.
e. Internal legal department hours spent hiring an external construction company.
f. Costs to paint the new store.
g. External legal fees, such as fees paid to lawyers related to purchasing the land on which the store will be built.
Presto's System Implementation In order to properly account for leases identified during its ASC 842 (Leases)
adoption, Presto purchased a license to a cloud-based lease accounting software system (LeaseAccount). Presto paid
a third-party consulting company $90,000 to assist in customizing the Lease Account system and integrating the system with its current internal accounts payable and general ledger software. That is, the lease software, as purchased "out of the box" was not yet customized to Presto, and Presto incurred costs in integrating and customizing the new
software. You are a member of Presto's accounting team and have been asked to document whether the fees paid to
the consultants can be capitalized.
Corporate Disclosures of Measurement Uncertainty Beginning in Q4 2015, several food safety incidents were
reported involving Chipotle Mexican Grill, Inc. (CMG). Locate Chipotle's 2018 Form 10-K and describe how the
company describes its methods for estimating its contingent liability associated with its various food safety legal
proceedings.
Describe how this disclosure supports the accrual for such losses in Chipotle's financial statements, and describe
how this disclosure meets the Codification's requirements for loss contingency disclosures.
Next, look up the SEC's Dear CFO Letter (2010) on loss contingency disclosures, aimed at improving transparency in public companies' loss contingency disclosures. Does this disclosure appear to satisfy the SEC guidance in
that letter? Explain.
Accrual for a Lawsuit, Writing an Issues Memo Your company has just been named as defendant in a lawsuit
related to a food poisoning incident. The plaintiff is suing for $200,000 in damages; your company believes the ultimate amount of loss could range between $25,000 and $175,000, with no amount in the range more likely than other
amounts in the range. The lawsuit is expected to be resolved in the second quarter of next year.
Citing from authoritative literature, prepare brief accounting issues memo to the files addressing (1) whether
a loss should be accrued, and for what amount, and (2) what disclosures should be made in the company's financial
statements.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started