Reference no: EM132939160
Questions -
Q1. Atlanta Tours Company entered into a five-year lease for a boat on January 1, year 1, with Duck Boats, Inc. Duck Boats, Inc. will include with the boat an inscription carved on one of the its sides with the text "Gone with the Wind". The following are the terms of this lease agreement.
Market value (Fair value) of the boat at the time of the lease $ 10,000
The boat has an estimated useful life of eight years the estimated salvage value is $ 3,500. Atlanta Tours Company does not absorb any gains or losses that result from fluctuations in market value or residual value.
The value of the annual rent payments is $ 2,000 and is due on January 1 of each year. The implicit interest rate is 6%.
There is an option to buy the boat when the lease period expires for $ 4,000.
The lease cannot be canceled or extended
Required - Discuss whether Atlanta Tours Company should classify the lease as an operating or finance lease under (a) IFRS and (b) U.S. GAAP.
Q2. The Ultimus company offers its consumers discounts for purchasing items and taking ownership of them before they need them. The company offers to hold the items until the customer requests that they be shipped.
This provides some relief to the consumer by not having to allocate extra space in their warehouses to store merchandise that they do not yet need. The merchandise is available and ready for shipment to the buyer at the time the sale is made.
Ultimus company pays the cost of storage and insurance prior to shipment of the merchandise. Consumers are billed at the time of sale and given a normal 90-day pay period.
Required - Determine whether it is better for the Ultimus company to recognize revenue from the sale of the items at the time it transfers ownership to the customer or to defer revenue recognition until the items are shipped to the consumer.
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