Alpha Co has just acquired Beta Co. Beta Co was the lessee for several operating leases on various buildings. Because of market conditions, these leases are worth $100,000 more to the lessee on the date of acquisition. How should Alpha Co account for this?
A) Recognize a $100,000 gain on the lease contract
B) Recognize a $100,000 intangible asset related to the lease contract
C) Recognize a $100,000 liability on the contract
D) Don't recognize any amount related to the change in value for the lease contract

Question

Quizplus · Accepted Answer

When a company acquires another company, any favorable lease contracts (i.e., leases that are worth more than the current market rate) are considered intangible assets. This is because the favorable terms of the lease provide an economic benefit to the acquirer. Therefore, Alpha Co should recognize a $100,000 intangible asset related to the lease contract.

Alpha Co Has Just Acquired Beta Co