...Build-A-Bear Workshop Inc.—Leases EXCERPTED WITH PERMISSION FROM CASES IN FINANCIAL REPORTING SEVENTH EDITION ISBN: 978-1-934319-79-6 ELLEN ENGEL D. ERIC HIRST MARY LEA MCANALLY © Copyright 2012 by Cambridge Business Publishers, LLC. All rights reserved. No part of this publication may be reproduced in any form for any purpose without the written permission of the publisher. This document is authorized for use by Barbara Grein, from 9/19/2011 to 12/10/2011, in the course: ACCT 322: Financial Reporting II - Grein (Fall 2011), Drexel University. Any unauthorized use or reproduction of this document is strictly prohibited. Build-A-Bear Workshop Inc.—Leases Build-A-Bear Workshop Inc., (NYSE: BBW) is the leading and only global company that offers an interactive makeyour-own stuffed animal retail-entertainment experience. Founded in 1997, the company and its franchisees currently operate more than 400 Build-A-Bear Workshop® stores worldwide, including company-owned stores in the United States, Puerto Rico, Canada, the United Kingdom, Ireland, and France, and franchise stores in Europe, Asia, Australia and Africa. In 2007, the interactive experience was enhanced - all the way to CyBEAR™ space with the launch of buildabearville.com®, the company’s virtual world, stuffed with fun. Build-A-Bear Workshop. Source: Company Web site. Learning Objectives • Understand the economic incentives of leasing versus buying assets. • Interpret lease footnotes and...
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...Build-A-Bear Workshop, Inc.—Leases EXCERPTED WITH PERMISSION FROM CASES IN FINANCIAL REPORTING EIGHTH EDITION ISBN: 978-1-61853-122-3 MICHAEL DRAKE ELLEN ENGEL D. ERIC HIRST MARY LEA MCANALLY © Copyright 2015 by Cambridge Business Publishers, LLC. All rights reserved. No part of this publication may be reproduced in any form for any purpose without the written permission of the publisher. This document is authorized for use by Hongxia Chai, from 4/29/2015 to 7/31/2015, in the course: AC580: FairfieldMSA - Colvin (Summer 2015), Fairfield University. Any unauthorized use or reproduction of this document is strictly prohibited. Build-A-Bear Workshop, Inc.—Leases Build-A-Bear Workshop, Inc., (NYSE: BBW), is the leading and only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. Founded in 1997, the company and its franchisees currently operate more than 400 Build-A-Bear Workshop® stores worldwide, including company-owned stores in the United States, Puerto Rico, Canada, the United Kingdom, Ireland, and France, and franchise stores in Europe, Asia, Australia and Africa. In 2007, the interactive experience was enhanced - all the way to CyBEAR™ space with the launch of buildabearville.com®, the company’s virtual world, stuffed with fun. Source: Company website. Learning Objectives • Understand the economic incentives of leasing versus buying assets. • Interpret lease footnotes and discussion...
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...Build-A-Bear Workshop, Inc. a. Companies may lease assets rather than buying them because they only want the asset for a short period of time and don’t want to bear the risk of owning that asset. A company could also have difficulties trying to get approved for a loan to purchase the asset. b. An operating lease is like a rental agreement where all of the risks and ownership stay with the lessor rather than the lessee. A lease is considered a capital lease if any of the following occur: 1) Lease life is greater than 75% of the life of the asset. 2) Transfer of ownership at the end of the lease. 3) Bargain purchase at the end of the lease. 4) PV of lease payments is greater than or equal to 90% of the FMV of the asset. A direct financing lease is where the lessor removes the leased asset from their books and replaces it with a receivable. The only income recognized would be interest received. A sales- type lease is a capital lease where the present value of lease payments is higher than the carrying amount of the leased asset. c. All leases are not the same so it is important for accountants to distinguish between leases because it can have a substantial effect on the books of a company. For example, some leases get expensed while others transfer ownership and can become an asset. d. i. This lease should be treated as a capital lease under GAAP because it does not meet any of the criteria outlined in question b. ii. Lease Expense 100,000 Cash 100,000 ...
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...Company Name: GCL-Poly Energy Holdings Limited Stock Code: 3800 To: Albert From: XXX Date: 28/10/2014 Subject: The accounting requirements for leases BACKGROUND | As per our discussion, I have reviewed the consolidated financial statement of the GCL-Poly Energy Holdings Limited for the last year ended 31 December, 2013. For your reference, I would like to answer your question to facilitate your decision of lending the money as an investment that why the leased assets do should be recorded as the company’s assets under the accounting standard even the assets are not under the name of GCL. As per the financial statements, we can extract the following details: Obligation under finance lease – due within one year $654,197 Obligation under finance lease – due after one year $1,416,322 Explanation of accounting treatments In accordance to the IAS 17: Leases, it defines a finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. This means that even if the titles of the assets are not transferred, if the lessee bears the responsibility to the assets’ risks and rewards such as the repairs and maintenances, depreciation and any related expenses, together with the lease term covering the major useful lives of the assets, the company should reflect the assets under the non-current assets. This is more likely to reflect the true and fair financial position...
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...Case Assignment #1: The Farmer and the Landlord Group Members: Abi Erogbogbo Tierra Pearson _____________________________________________________________ Choice of Contract Structure Advising Farmer Given the volatility and uncertainty associated with farming, the Farmer will be better off with a contract that makes allowance to insure against a poor harvest and financial incentive when the harvest is profitable. An employment contract will be best for the farmer. With employment, the farmer will not be over-burdened with the financial responsibility of paying substantial monthly rent, in a month/period where his harvest has not been profitable. The agreement will depend heavily on the effort, expertise, and harvest of the farmer. This may not be a very attractive option for the Landowner, but if I were advising the farmer an employment contract will be most preferred. Advising Landowner As a landowner, my major objective is to derive the maximum profits from renting/leasing out my land. Land is a fixed asset; hence it should be able to generate a constant cash inflow for the owner. However, if the team were advising a landowner, a constant annuity (i.e. monthly rent) will be the preferred option. This monthly rent will serve as a fixed income for the landowner regardless of how well the farmer’s harvest is doing. With this contract option, the Landowner is protected from the liability that may be incurred if the farmer’s harvest results in a loss...
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...Chapter 18 Lease Financing ANSWERS TO END-OF-CHAPTER QUESTIONS 18-1 a. The lessee is the party leasing the property. The party receiving the payments from the lease (that is, the owner of the property) is the lessor. b. An operating lease, sometimes called a service lease, provides for both financing and maintenance. Generally, the operating lease contract is written for a period considerably shorter than the expected life of the leased equipment, and contains a cancellation clause. A financial lease does not provide for maintenance service, is not cancelable, and is fully amortized; that is, the lease covers the entire expected life of the equipment. In a sale and leaseback arrangement, the firm owning the property sells it to another firm, often a financial institution, while simultaneously entering into an agreement to lease the property back from the firm. A sale and leaseback can be thought of as a type of financial lease. A combination lease combines some aspects of both operating and financial leases. For example, a financial lease that contains a cancellation clause--normally associated with operating leases--is a combination lease. A synthetic lease is an arrangement between a company and a special purpose entity that it creates to borrow money and purchase equipment. Although the “lease” amounts to actually borrowing money guaranteed by the lessee, it doesn’t appear on the company’s books as an obligation. A special purpose entity (SPE) is a company ...
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...Chapter 18 Lease Financing ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS 18-1 An operating lease is one that typically requires the lessor to service the equipment, that has a lease term that is much shorter than the life of the equipment, and that can be cancelled by the lessee. A capital or financial lease has a lease term that is closer to the expected life of the asset, requires the lessee to provide maintenance service, and cannot be cancelled without a substantial penalty. A sale and lease back is generally set up like a financial lease, except the leased property was formerly owned by the lessee, who sells it to the lessor and simultaneously leases it back. These terms are not hard and fast, and actual leases can have some of the characteristics of operating leases and some of financial leases. Before 1973, when FASB 13 was passed, firms could lease on a long-term, non-cancelable basis, and thus create a long-term liability, yet not show either the leased asset or the liability on its balance sheet. After FASB 13, most financial or capital leases had to be shown on the balance sheet, with the leased asset appearing as an asset and the PV of the future lease payments appearing as a liability. This is called “capitalizing the lease,” and its purpose was to cause balance sheets to better reflect companies’ actual financial positions. A lease must be capitalized if any one of the following conditions holds: a. The lease terms effectively transfer...
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...compounded annual risk-free rate of 5%, we can calculate the annualized lease rates according to the formula: F0,T = S0 × e(r−δl )×T ⇔ F0,T S0 = e(r−δl )×T S0 = (r − δl ) × T F0,T 1 ln T S0 ⇔ ln F0,T ⇔ δl = r − Time to expiration Forward price Annualized lease rate 3 months $70.70 0.0101987 6 months $71.41 0.0101147 9 months $72.13 0.0100336 12 months $72.86 0.0099555 The lease rate is less than the risk-free interest rate. The forward curve is upward sloping, thus the prices of exercise 6.1. are an example of contango. Question 6.2. The spot price of oil is $32.00 per barrel. With a continuously compounded annual risk-free rate of 2%, we can again calculate the lease rate according to the formula: δl = r − F0,T 1 ln T S0 Time to expiration Forward price Annualized lease rate 3 months $31.37 0.0995355 6 months $30.75 0.0996918 9 months $30.14 0.0998436 12 months $29.54 0.0999906 80 Chapter 6 Commodity Forwards and Futures The lease rate is higher than the risk-free interest rate. The forward curve is downward sloping, thus the prices of exercise 6.2. are an example of backwardation. Question 6.3. The question asks us to find the lease rate such that F0,T = S0 . We take our pricing formula, F0,T = S0 × e(r−δl )×T , and immediately see that the sought equality is established if e(r−δl )×T = 1, which is guaranteed for any T > 0 if and only if r = δ. If the lease rate were 3.5%, the lease rate would be higher than the risk-free interest rate. Therefore, a graph...
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...Online Chapter 15 LEASE FINANCING AND BUSINESS VALUATION Learning Objectives After studying this chapter, readers will be able to describe the two primary types of leases, explain how lease financing affects financial statements and taxes, conduct a basic lease analysis from the perspective of the lessee, discuss the factors that create value in lease transactions, explain in general terms how businesses are valued, and conduct a business valuation using discounted cash flow and market multiple approaches. Introduction This chapter covers two unrelated topics: lease financing and business valuation. Leasing is a substitute for debt financing and hence expands the range of financing alternatives available to businesses (and to individuals). However, leasing should be used only when it offers some advantage over conventional financing. We begin this chapter by discussing factors that contribute to the large amount of leasing activity among healthcare businesses and how businesses analyze lease transactions. The valuation of entire businesses, as opposed to capital projects, is a critical step in the merger and acquisition process. In addition, business valuation plays an important role when one owner is bought out by other owners and when businesses are inherited. The second part of this chapter discusses two techniques used to value businesses. Leasing Basics Businesses generally own fixed assets, but it is the use of buildings and equipment that is important, not their...
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...disk, the floppy disk, IBM supermarket checkout station, and an early version of the automatic teller machine”. Mr. Watson’s vision and or innovation required acquiring talent by making IBM, “the best place to work”. The late 80’s and 90’s became riddled with problems as a result of a lost vision and increasing costs. IBM’s lost vision included not predicting the problems of converting from a lease-oriented business into a sales oriented business, need for network consultants, and the evolution of the PC. Finally, costs went up faster than revenues causing lower profits. 2) What did Gerstner do when he assumed the role of CEO in April 1993? Evaluate Gerstner’s approach in crisis management. How well did he perform as a turnaround manager? What challenges did he face as he attempted to position the company for growth? In 1993, Gerstner put the customer first, consolidated costs and looked to the future. His approach to the crisis in 1993 was to get involved with IBM’s customers. Gerstner attended sales meetings, created “one IBM” (reorganization), and directed executives to “bear-hug” customers in order to retain their business. He also sought to send a message to customers that employees will be held to high performance standards. “One IBM”, was designed to cut costs while meeting customer needs. Examples include outsourcing PC manufacturing and cutting IT operations cost in half while improving and...
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...Mama Bear Child Care was founded five years ago by Mylene Bartolome, Antonette Evangelista, Mary Rose Ang and Analyn Ramos. The four worked on the idea of forming a business based on the emerging needs to help the working mothers or often called “mamas” Mama was the acronym taken from their names. After graduation Mylene Antonette Mary Rose and Analyn created a partnership and launched their venture leasing the condominium unit of Mylene in Makati. From the initial of four children of their friends working in Makati, the business, grew to 50 due to referrals from satisfied clients using the word of mouth. The company’s services are customized, with affordable rates. The target market identified to be working parents aged between 25 to 45 years old, who are employed in Makati offices with household income of atleast 25,000 They targeted and negotiated with companies in the Makati Business District which have no day care centers. Based on the report of the National Commission on the Role of Filipino Women, 59% of their total workforce are female. Women typically handle more of the care giving responsibilities for families and are more often affected at work due to these responsibilities. While there are 25% men who are particularly involved with making child care arrangements. Therefore, Mama Bear would like to exploit the opportunity of addressing the work/life issues for both women and men. The partners felt that with the demand for child care services steadily increases as...
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...different countries which are Argentina, Turkey, Germany, United Kingdom, Malaysia and Kenya. The analysis aims to highlight the objectives, implementation and the government rules towards privatization of airports. This paper also aims to identify to what degree privatization contributes to or enhances the performance of the airports. The study measures the change in any given indicator of performance whether the privatization on the airports are successful or not. For each country, privatization occurred by fully privatized or partially privatized with residual public ownership. Moreover, the study also stress on the implication of privatization towards the countries. One of the implication is it will reduce burden of the government to bear high expenses. Privatization programme also...
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...“THE MARKET FOR COMMERCIAL PROPERTY IS EFFICIENT” DISCUSS By: AKINDELE, DOLAPO BOSE Word Count: 2,807 FACULTY OF BUILT ENVIRONMENT UNIVERSITY OF THE WEST OF ENGLAND BRISTOL 1.0 INTRODUCTION The commercial property, as we aware, is one aspect of the property market but with a much increasing velocity, it has fast become a market to be reckoned with. Not only is it viewed as just a market type, it is now a major consideration for investors. Direct investment by UK institutions and overseas investors, attracted by the long leases and secure income, have poured huge investment into commercial property, and the market has provided an enormous valuable alternative to gilts and equities (Harris R. 2005). Though the property industry will appear to be insignificant when compared to other sectors with only two property companies, Land Securities and Canary Wharf, qualifying for inclusion in the FTSE 100, the top 100 companies by market capitalisation (value of shares), as at April 2001, importance is placed on the commercial property sector (Freeman, 2005). The property market is also of consideration to the government as well because as much as it is contributing to the economic growth of the nation – as at the end of 2003, the total value of the commercial property stock was a whopping £611bn (RICS, 2005) – it is beclouded by its own issues and failures. This purpose of the paper is to examine the commercial property market, its dynamism i.e. driver...
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...FAC3703/101/3/2015 Tutorial letter 101/3/2015 Specific Financial Reporting FAC3703 Semesters 1 and 2 Department of Financial Accounting IMPORTANT INFORMATION: Please activate your myUnisa profile and myLife email address and ensure you have regular access to the myUnisa module site FAC3703 as well as to your group site. Note: This is an online module, and therefore your module is available on myUnisa. CONTENTS Page 1 INTRODUCTION ..........................................................................................................................4 2 FORMAT OF FAC3703 ................................................................................................................4 2.1 Fully online ...................................................................................................................................4 2.2 Printed materials...........................................................................................................................5 3 PURPOSE OF AND OUTCOMES FOR FAC3703........................................................................5 3.1 Purpose ........................................................................................................................................5 3.2 Outcomes .....................................................................................................................................6 4 LECTURERS AND CONTACT DETAILS .......
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...1) Exclusive Possession a) The Right to Exclude Others, pp 1-38 i) Overview (1) The private landowner’s right to exclude others from his or her land is “one of the most essential sticks in the bundle of rights that are commonly characterized as property. ii) Policy in favor of private property (1) Things held in common are usually neglected (2) There is a fundamental property right that goes beyond monetary damages iii) Property Rights are not Absolute (1) Apply a balancing test of property and societal interest (a) One may trespass to put out a fire (2) Property rights are diminished when others are invited onto land (3) The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumcised by the statutory and constitutional rights of those who use it. (4) If property is open to the general public then the First Amendment supercedes property rights on it. (a) These protections are available against unreasonably restrictive or oppressive conduct on the part of private entities that have otherwise assumed a constitutional obligation no to abridge the individual exercise of such freedoms because of public use of their property. (b) The NJ court said that the right of free speech conferred by the state constitution was secure not only from State interference but – under certain conditions – from the interference of an owner of private property even when exercised on that private property. (i) Schmid...
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