Lazy Coffee: Accounting For Leases Case Study Solutions

Introduction:

The Lazy Coffee Company is a coffee shop chain operating in the United States. The company is considering expanding its business by leasing new locations. However, the company is facing challenges in accounting for leases as per the new lease accounting standards introduced by the Financial Accounting Standards Board (FASB) in 2016. This case study focuses on the challenges faced by the Lazy Coffee Company in accounting for leases and recommends solutions for the company to comply with the new lease accounting standards.

Case Issue:

The Lazy Coffee Company is facing challenges in accounting for leases as per the new lease accounting standards introduced by the FASB. Under the new standards, the company is required to recognize all leases, including operating leases, as liabilities and assets on the balance sheet. The company is also required to provide more detailed disclosures in the financial statements regarding the leased assets and liabilities. The new lease accounting standards pose a significant challenge to the company in terms of complying with the standards and ensuring accurate financial reporting.

Case Analysis:

To comply with the new lease accounting standards, the Lazy Coffee Company needs to identify all its leases and determine whether they meet the criteria for recognition as assets and liabilities on the balance sheet. The company needs to identify the lease term, lease payments, and discount rate to calculate the present value of lease payments. The present value of lease payments is then recognized as a lease liability, and the leased asset is recognized at the same amount as the lease liability, adjusted for any initial direct costs incurred.

The company also needs to provide more detailed disclosures regarding its leases, including the nature of the leases, the terms and conditions of the leases, and the impact of the leases on the financial statements. The company needs to disclose the amount of lease liabilities and assets recognized on the balance sheet, the amount of lease expense recognized in the income statement, and the maturity schedule of lease liabilities.

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Conclusion and Recommendations:

The Lazy Coffee Company needs to adopt a systematic approach to identify all its leases and comply with the new lease accounting standards. The company needs to develop a lease accounting policy that outlines the procedures for identifying, evaluating, and accounting for leases. The company also needs to educate its employees regarding the new lease accounting standards to ensure accurate financial reporting.

The company can also consider implementing lease accounting software that automates the lease accounting process and provides detailed lease accounting reports. The software can help the company comply with the new lease accounting standards, reduce errors, and provide more accurate financial reporting.

In conclusion, the Lazy Coffee Company needs to act promptly to comply with the new lease accounting standards to avoid any penalties and maintain investor confidence. The company needs to take a systematic approach to identify all its leases, develop a lease accounting policy, and educate its employees. The company can also consider implementing lease accounting software to streamline the lease accounting process and provide more accurate financial reporting.

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