Question

Part 1
Three companies jointly buy a 15-floor office building. Each floor in the building has a separate legal title, which allows a floor to be sold separately. Each company takes title of five of the floors, one of which it uses for its own purposes.
Each has a right to use that one floor for whatever purpose it chooses.
The companies set up a new company, Rental Inc., and each transfers its ownership of four floors of the building to Rental. The 12 floors are rented to third parties. Rental employs a management team to manage the rental business.
Rental is controlled jointly by the three companies. The three companies are not liable for any costs of Rental.
Required
Discuss how each company would report its investment in Rental.
Part 2
Assume instead that the three companies set up Rental to purchase all 15 floors. Financing for the acquisition of the building in the name of Rental is secured by the building.
Each company leases one floor from Rental. Each has the right to use that floor for its own purpose or to sublease it independently to third parties. The lease term is for all of the expected useful life of the building.
Rental rents the remaining 12 floors to third parties and employs a management team. The three companies jointly control Rental.
Required
Discuss how each company would report its investment in Rental.
Part 3
Assume instead that rather than all three companies each having a right to use a floor, only one of them, Socre Ltd., has that right. Socre Ltd. has use of three of the floors for its own purposes, and the remaining 12 floors are rented to third parties by Rental.
Required
Discuss how each company would report its investment in Rental.


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  • CreatedJune 09, 2015
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