Q1: Industry Research, Lease Adoption In their adoption of ASC 842 (Leases), companies in the travel and hospitality industry debated the question of whether hotel rooms are leases.
Apply the research process to this question as follows:
a. Research the industry—what are some companies that own or operate hotels?
b. Locate disclosures from one of these companies to get a better understanding for how they describe hotel room rentals (both from a business and an accounting perspective). Review, for example, the latest 10-K for one of the companies you identified.
c. Define the research question.
d. Stop and think: What answer makes sense to you, and what are the potential implications of this judgment?
e. Search for guidance. What guidance does the Codification offer that might address this issue?
f. Analyze and document the alternatives.
g. Conclude and justify your position.
Q2: Identifying Researchable Questions Facts: Imports Inc. is a U.S. public company and has a calendar year-end. Imports purchases auto parts from Korea and sells them to domestic car dealerships around the U.S. On November 1, 20X1, Imports received a shipment on account of $400,000 worth of shocks and struts from its Korean supplier. Unfortunately, the parts were defective. Faced with commitments to deliver working parts to its own customers, Imports paid $200,000 on 11/15/X1 to a domestic third party to fix the defective parts. However, even after the repair effort, the shocks and struts remained defective.
Imports has not yet paid the Korean company for the parts purchased.
In early December, Imports requested repayment from the manufacturer for its costs of repair ($200,000). However, when the manufacturer refused to pay, Imports sued the manufacturer on 12/15/X1 for its amount invested ($200,000) plus an additional $100,000 for lost revenues.
On February 2, 20X2, a U.S. court ruled in favor of Imports, awarding Imports Inc. $300,000, payable ratably in three monthly installments to begin on 2/15/X2.
Required:
1. Identify Import Inc.’s researchable questions as of 12/31/X1 related to this series of issues.
2. Identify Import Inc.’s researchable questions as of 2/2/X2 related to this series of issues.
Q3: Baseball Suites—Lease Evaluation The New York Yankees offer multiyear luxury suite licenses to customers, including 3-, 5-, and 10-year licenses. Customers who sign these license agreements have the right to use a specified suite in the stadium (say, suite no. 25) for the dates specified in the license agreement. Alternatively, customers with a more limited interest or budget can sign up for a partial season (a 20- or 41-game plan) where the customer can specify which games it wishes to view from the suite. While the customer is enjoying the suite, a third-party concessionaire (similar to Presto’s role) will provide premium food and beverage service to guests in the suite. Evaluate—is a suite license a lease? Assume a customer signs a 20-game license for specified games to occur within a single Major League Baseball season.
Q4: Sales Commissions, Writing an Email Assume the New York Yankees pay its sales staff a 2% sales commission on each luxury suite license contract signed (such as by a corporate customer). Research whether this commission payment should be reported as an asset or an expense by the New York Yankees. Craft your response in the form of an email, and assume you’re responding to a question asked to you by the accounting manager for the Yankees.
