Your company, Best Accounting CPA (BEST), is considering getting office space for its expanding public accounting business.
Question:
Your company, Best Accounting CPA (BEST), is considering getting office space for its expanding public accounting business. We Work (WW), offers multiyear licenses to use luxury office space in the heart of the Chicago Business District. The luxury licenses to customers include an 8 year licenses, or for a 10 year, "life of the office space," license. Customers who sign agreements have the right to use a specified suite of office spaces in the John Hancock Building (i.e., suite no, 1050) for the dates specified in the license agreement.
To customers with more limited budgets or needs WW offers the option to license suites for a 1-year term.
Annual payment for the suite license is due in full at license start date and every year after for multi-year licensees.
To help maintain and keep offices clean, Beautiful Office Corp (a third party) will provide premium maintenance services to be billed separately license holders monthly should BEST accept the deal, they could contract via Beautiful, or handle maintenance on their own.
Your manager has asked you to evaluate two scenarios that RACPA is considering:
1. An 8-year luxury suite license
2. A license for 1 year.
You are asked to do a Accounting Issues Memo to address whether the office licenses in these two scenarios are considered a lease for BEST. You are NOT required to determine the type of lease (e.g. operating vs. finance lease), but rather whether the license contract contains a lease.
You should assume that the new lease rules (ASC 842 required for years ending after December 15, 2018) are in place. You should follow the standard memo format.
Project management the managerial process
ISBN: 978-0073403342
5th edition
Authors: Eric W Larson, Clifford F. Gray