Course Name :Accounting For Decision Making
Title of the Assignment : MacCloud Winery Assignment ( Group )
Case 14-4: Accounting at MacCloud Winery
Q1: Should the leased building be accounted as an asset? Should the agreement to pay lease rentals be recorded as liability? Justify your answers. Do Not refer FASB rules.
Should the leased building be accounted as an asset?
The answer is YES. It is an asset, as the leased building is required to perform the winery operation. Without the building, there will be no place for operation, thus the business can’t run. It is a fixed asset which falls under the Property, Plant and Equipment.
Should the agreement to pay lease rentals be recorded as liability?
To report lease payments on financial statements is dependent upon whether the lease is classified as a capital lease or an operating lease.
In this case, the lease contract that Mike signed did not mention any bargain purchase option or that he might assume ownership of the leased building. Therefore, it will falls under Operating Lease. An operating lease is not recorded as liability. Instead, lease payments are recorded as expenses on the income statement.
Q3: Applying the principals of accrual accounting, how should Mike treat the expenditures for the land, vines, vine planting, fertilizing, and water? Be specific regarding treatment overtime, incluing amount, and the rationale for the treatments.
Principal of accrual accounting method, income is counted when sale occurs and the expenses are counted when receive goods or services. Accrual basis is we do not wait until to see the money or we actually pay money out of our checking account. Expenses are incurred before the goods and services are received but we are obliged to pay later by terms. We do not wait until the job completion of date and we incurred the expenditure as accrual.
From this case, Mike purchased five acres of land for $250,000 and this asset will incurred his...