Question
I was at a conference today and they were talking about some new lease regulations and how that may impact our financial statements. I know
I was at a conference today and they were talking about some new lease regulations and how that may impact our financial statements. I know that we have a couple of leases, one that we record as a liability and one that we do not. How will this new lease requirement impact us? When does this go into effect? Will we need to restate prior financial statements? Are there any retrospective entries that we have to make? If so, what are they and when do we need to record them? They also talked about adopting early. I may be interested in early adoption. What would we need to do to implement this change this year?
Upon investigation of Blackwell's records, you found that Blackwell had had two leases. One that is currently being accounted for as a capital lease and one being treated as an operating lease (under current standards).
The capital lease was for equipment. The lease started in 2016 and was a 5-year lease of annual lease payments of $50,000, starting on January 1, 2016. The lease also had a bargain purchase option for $20,000 at the end of the lease. The equipment had a useful life of 6 years and Blackwell uses the straight-line method of depreciation. The implicit interest rate for this lease was 6%.
The operating lease was a 15-year lease for their facilities that started on January 1, 2015. The lease consisted of annual rental payments, starting on January 1, 2015, of $60,000. When they started the lease in 2015, the expected useful life of the facility was 30 years. Blackwell imputed interest rate is 8%.
1. Assuming that Blackwell will do early adoption and adopt ASU 2016-2 in 2018, what liabilities and assets will need to be reported in the 2017 and 2018 comparative financial statements.
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