APPLIED R ESEARCH EXERCISES – ACCOUNTING I SSUES M EMO
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 write an 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 (Chapter 4 and our Coursenote on Creating Effective Documentation).
Your memo should be no more than 5 pages long, using 12-point Times New Roman font, one-inch margin on all sides, double spacing in the text and single spacing for any sections from the codification.
The Chapter 4 Appendix, that we reviewed in class, provides a nice sample format for the memo. While including cites and guidance from the Codification in your memo are important, a key part of the memo includes your analysis in your own words– e.g., reasons for citing a particular Codification section,your interpretation of how the guidance applies to the two lease scenarios, any assumptions you may need
to make about the license contract terms and your conclusion on the accounting treatment. Your conclusion should include a summary of the key factors you considered in drawing your conclusions
