Today a business can lease cars, buildings, equipment, and machinery. You name it, you can probably lease it. Bill Roloson, a farmer from Canada, can verify that almost anything can be leased. Bill is in the horse racing and horse breeding businesses. When his stallion, Rebel Blue Chip, died in 1993, he began searching for a replacement to sire future winners. His search led him to the stallion Hunterstown, a horse that had been put out to pasture in 1990 because of lameness. Roloson contacted Hunterstown’s owner, Gertrude Seiling, and arranged to lease the horse for stud for five years.
Upon arrival at Prince Edward Island in Canada, the horse was given a workout. Much to Roloson’s surprise, Hunterstown’s lameness seemed to have healed. Instead of using Hunterstown for breeding, Roloson wanted to begin racing the stallion again. The lease agreement with Seiling was renegotiated to cover race earnings, and Hunterstown began winning races. Roloson then faced the decision of continuing to race the horse or take the horse back to Prince Edward Island for stud duty. Roloson stated, “We’d planned to bring him back for at least a month . . . , but that’s up in the air, depending on how he’s racing.”
1. Can the lease of an animal be capitalized?
2. In this instance, what would be Hunterstown’s expected useful life? Would your answer vary depending upon whether Hunterstown was used for breeding or for racing?
3. When circumstances changed and the lease for the horse was renegotiated, could that affect whether the horse was capitalized? How?