All-In operates casinos across the United States. The company has experienced tremendous success at its existing casino

Fantastic news! We've Found the answer you've been seeking!

Question:

All-In operates casinos across the United States. The company has experienced tremendous success at its existing casino locations and would like to expand its operations by opening a new casino in Asia in the next few years. Off-Book is in the business of (1) acquiring land to develop buildings that meet its customer specifications and (2) subsequently leasing the buildings to the customer.

On January 1, 2012, All-In and Off-Book entered into an arrangement in which Off-Book will purchase land in a specific location and build a casino according to All-Inn’s specifications. Once the construction is complete, Off-Book will lease the casino to All-In. Although All-In provided the overall design and layout of the casino, Off-Book is responsible for all construction activities. The budgeted cost of constructing the casino is $60 million. Off-Book will pay all construction costs up to the budgeted amount and $40 million to purchase the land.

Answer the following questions:

1. How should All-In account for the lease on January 1, 2012 (the date All-In and Off-Book entered into the lease)?

2. Assume that construction of the casino was completed as scheduled on January 1, 2014. Would All-1n need to reevaluate the transaction upon completion of construction?