QUESTION Chapter 18 Bella's Bakery is a privately owned bakery located in Charlottetown, PEI. Bella and her brother, John, opened the bakery in 2018. John was eager to help Bella bring her dream to life after he got his Marketing degree. The bakery is open year-round but is especially busy in the summer when more tourists come into the shop, and more wedding cake orders are placed. John used to deal with the business side of the Bakery, including the bookkeeping, but now that the Bakery has grown so much, Bella has decided to hire you, CPA, to help. Here are some notes from your meeting with Bella and John: "We just entered into a 5-year lease agreement, beginning Jan.1,2022 for a van so that we can also offer a delivery service. The annual lease payments are $12,500, due at the beginning of the year. The van has a fair value of $85,000. There is no bargain renewal option. The economic life of the asset is 6 years. The implicit interest rate is 6%. The guaranteed residual value is $25,000. We're not sure how to account for this lease. Can you tell us what kind of lease this is [ANALYZE) and prepare an amortization table for us? [CONCLUDE] John is wondering if a shorted lease term would change what kind of lease this is. Can you tell us if a 4-year lease term with the same asset would change anything? [ADVISE]" ASSESS the Situation: maximum 2 sentences ANALYZE Major Issues: maximum 6 sentences CONLUDE: maximum 2 sentences, plus journal entries, if applicable & ADVISE: maximum 2 sentences QUESTION Chapter 18 Bella's Bakery is a privately owned bakery located in Charlottetown, PEI. Bella and her brother, John, opened the bakery in 2018. John was eager to help Bella bring her dream to life after he got his Marketing degree. The bakery is open year-round but is especially busy in the summer when more tourists come into the shop, and more wedding cake orders are placed. John used to deal with the business side of the Bakery, including the bookkeeping, but now that the Bakery has grown so much, Bella has decided to hire you, CPA, to help. Here are some notes from your meeting with Bella and John: "We just entered into a 5-year lease agreement, beginning Jan.1,2022 for a van so that we can also offer a delivery service. The annual lease payments are $12,500, due at the beginning of the year. The van has a fair value of $85,000. There is no bargain renewal option. The economic life of the asset is 6 years. The implicit interest rate is 6%. The guaranteed residual value is $25,000. We're not sure how to account for this lease. Can you tell us what kind of lease this is [ANALYZE) and prepare an amortization table for us? [CONCLUDE] John is wondering if a shorted lease term would change what kind of lease this is. Can you tell us if a 4-year lease term with the same asset would change anything? [ADVISE]" ASSESS the Situation: maximum 2 sentences ANALYZE Major Issues: maximum 6 sentences CONLUDE: maximum 2 sentences, plus journal entries, if applicable & ADVISE: maximum 2 sentences
