Hi, I have to answer a Build a Bear financial reporting case study. Below are the questions:

https://learn.dcollege.net/bbcswebdav/pid-3564677-dt-content-rid-14980258_1/courses/40447.201445/Build-A-Bear_Workshop_Inc.-Leases.pdf

1. Whydoaccountantsdistinguishbetweendifferenttypesofleases?
2. Consider the following hypothetical lease for Build-A-Bear Workshop retail location.

• The lease term is five years
• Lease payments of $100,000 are due the last day of each year
• At the end of the lease, title to the location does not transfer to Build-A-Bear nor is there a bargain purchase option
• The expected useful life of the location is 25 years. The fair value of the location is estimated to be $1,500,000.

Will this lease be treated as an operating lease or a capital lease under current U.S. GAAP? Explain.

Provide the journal entry that Build-A-Bear Workshop will record when it makes the first lease payment.

Assume that a second lease is identical to this lease except Build-A-Bear Workshop is offered a first year rent-free. That is, the company will make no cash payment at the end of year one, but will make payments of $125,000 at the end of each of years 2 through 5. Provide the journal entries that the company will make over the term of this lease.

3. Consider Build-A-Bear Workshops operating lease payments and the information in Note 10, Commitments and Contingencies. Further information about their operating leases is reported in Note 1, Description of Business and Basis of Preparation (k) Deferred Rent.

What was the amount of rent expense on operating leases in fiscal 2009?

Where did that expense appear on the companys income statement?

i. Calculate the present value of the future minimum lease payments at Jan. 2 2010. Assume that the implicit interest rate in these leases is 7%.

ii. had build a bear entered into all of these leases on jan. 2 2010, what journal entry would the compnay have recorded if the leases were considered capital leases?

iii. what jounral entries would the company recrd in fiscal 2010 for these leases. if they were considered capital leases?

iv. what would the company have reported as the cost of 'property and equipment, net' at jan. 2, 2010 as "total assets"?

v. what wouldthe company have reported as 'long term obligations under capital leases" at jan 2 2010? As 'total current liabilites"?

g. under current GAAP, what incentives does build a bear's mangement have to structure its leases as operating leases? Comment on the effect of leasuing on the quality of the company's financial reporting

h. If build a bear had capitalized their operating leases as the FASB and IASB propose, key financial ratios would have been affected/

i. refer to your solution to part f,, above to compute the potential impact on the current ratio, debt to equity ratio and long term debt to assets ratio at jan 2 2010. Is it true that the decision to capitalize leases will always yield weaker liquidity and solvency ratios?

ii. refer to build a bear income statement ended april 3, 2010. Compute the potential impact of lease capitalization on return on equity and return on assets for the quarter. Assume that lease payments and the amortization and interest expenses you computed for fiscal 2010 in part f iii were incurred evenly over 2010. Also, assume a marginal tax rate of 35%. Use the balance sheet numbers at jan 2 2010 in the denominator of both return ratios than averages. Is it true that the decision to capitalize leases will always yield weaker performance ratios?