ALT Company, as tenant, acquired for $600,000, paid in a single amount, the right to use an entire office building for the next ten years.ALT expects to rent out the floors in the building to various commercial tenants.As tenant, ALT accounts for its lease as a capital lease amortizing the leasehold asset on a straight-line basis over ten years.ALT, as landlord, signed operating leases with the tenants for all of the rentable space.The rents total $150,000 received at the end of each year for the next ten years, $1.5 million in total.
Required:
a. Under current GAAP, can ALT treat the same property as a capital lease and an operating lease?
b. What is the book value of this property after two years?

Assume, independent of your answer to the preceding question, that the book value of the property after two years is $400,000. On that date, some of the tenants go bankrupt and ALT believes it will be unable to rent their now-vacant space, which will remain empty for the remaining eight years. The fair market value of the remaining leasehold with still-solvent, rent-paying tenants is $300,000.
c. If the remaining tenants will pay $800,000 in total, with present value $310,000, what entry, if any, will ALT make?
d. If the remaining tenants will pay $320,000 in total, with present value $290,000, what entry, if any, will ALT make?

Question

ALT Company, as tenant, acquired for $600,000, paid in a single amount, the right to use an entire office building for the next ten years.ALT expects to rent out the floors in the building to various commercial tenants.As tenant, ALT accounts for its lease as a capital lease amortizing the leasehold asset on a straight-line basis over ten years.ALT, as landlord, signed operating leases with the tenants for all of the rentable space.The rents total $150,000 received at the end of each year for the next ten years, $1.5 million in total.
Required:
 a.	Under current GAAP, can ALT treat the same property as a capital lease and an operating lease?
b.	What is the book value of this property after two years?
 	
Assume, independent of your answer to the preceding question, that the book value of the property after two years is $400,000. On that date, some of the tenants go bankrupt and ALT believes it will be unable to rent their now-vacant space, which will remain empty for the remaining eight years. The fair market value of the remaining leasehold with still-solvent, rent-paying tenants is $300,000.
c.	If the remaining tenants will pay $800,000 in total, with present value $310,000, what entry, if any, will ALT make?
d.	If the remaining tenants will pay $320,000 in total, with present value $290,000, what entry, if any, will ALT make?

Quizplus · Accepted Answer

The Answer of ALT Company, as tenant, acquired for $600,000, paid in a single amount, the right to use an entire office building for the next ten years.ALT expects to rent out the floors in the building to various commercial tenants.As tenant, ALT accounts for its lease as a capital lease amortizing the leasehold asset on a straight-line basis over ten years.ALT, as landlord, signed operating leases with the tenants for all of the rentable space.The rents total $150,000 received at the end of each year for the next ten years, $1.5 million in total.
Required:
 a.	Under current GAAP, can ALT treat the same property as a capital lease and an operating lease?
b.	What is the book value of this property after two years?
 	
Assume, independent of your answer to the preceding question, that the book value of the property after two years is $400,000. On that date, some of the tenants go bankrupt and ALT believes it will be unable to rent their now-vacant space, which will remain empty for the remaining eight years. The fair market value of the remaining leasehold with still-solvent, rent-paying tenants is $300,000.
c.	If the remaining tenants will pay $800,000 in total, with present value $310,000, what entry, if any, will ALT make?
d.	If the remaining tenants will pay $320,000 in total, with present value $290,000, what entry, if any, will ALT make?

ALT Company, as Tenant, Acquired for $600,000, Paid in a Single