Acct 306 Case Project Summer 2014 On January 1, 2014, NeedMoreRoom, Inc. (NMR) entered into a lease agreement with WeRentSpace, Inc. (WRS) to rent space for its corporate offices. Based on the lease agreement, the lease is properly classified as an operating lease. The lease has a 10-year lease term (expires on December 31, 2023), and there is no option to renew nor is the ability to negotiate for renewal provided in the lease agreement. In addition, the lease agreement contains two provisions that require NMR to incur certain one-time costs at the end of the lease term. The provisions include the following: 1. âLessor requires the lessee to perform general repairs and maintenance on the leased premises.â 2. âLessor requires the lessee to remove all leasehold improvements such that the premises are reinstated to original condition.â At the beginning of the lease, NMR placed into service various leasehold improvements (e.g., temporary walls, HVAC, carpeting) that have useful lives of 10 years and no residual value. Required: a. How should NMR account for the first obligation noted above? b. How should NMR account for the second obligation noted above? Hint: The proper accounting treatment for each obligation is one of the following: -account for it as a minimum lease payment -account for it as an asset retirement obligation -account for it as an expense when it is incurred For each obligation, explain which of the three options is the proper accounting treatment. Also, prepare (without numbers) and briefly explain the journal entries that would be necessary for each obligation throughout its life and when the entries would be recorded. Your solution should not be longer than 3 pages. You should cite the appropriate accounting standard(s) to support your solution (be sure to provide full citations). If you wish, you may copy and paste relevant portions of the standards as part of your solution, but you must also explain in your own words what the standards are saying and why you believe the standard(s) you cite support your solution. The case is worth 40 points. Your score will be determined based on the following: 1. Did you identify the proper accounting treatment for each obligation? 2. Did you appropriately cite the relevant accounting standard(s)? 3. Did you identify the appropriate journal entries and when they should be recorded? 4. Did you clearly explain your answers in your own words? 5. Did you use proper grammar, spelling, organization, and professional tone?
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