Write a memo
tamim_1Write a memo to the “Toys R U Audit File.” Be sure to include the following:
1. Brief description of current reporting rules for leases
2. Description of proposed reporting rules for leases
3. Example of application of proposed rules for a lessee
a. Assume the following lease terms:
i. Identifiable Asset: Facility (building) lease
ii. Term 10 years – assume no renewal option
iii. Monthly lease payments beginning at $125,000 per month over the ten year lease term
iv. The risk free rate is 2%, Toys R U borrows at an incremental rate of 6%, and the lessor rate is unavailable
v. Assume the lease commences on January 1, 2021 and the first payment is due February 1, 2021
4. Include the following journal entries:
a. Recording of lease related asset and liability at lease inception – use “Capitalized Lease Asset” and “Capitalized Lease Liability” as account titles
b. Recording of the monthly expense for the first two months – do each month separately
5. Attach an Excel worksheet to your memo with the following:
i. Calculation of the amount of the capitalized lease asset and related lease liability
ii. An amortization schedule for the lease term
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