Bear Minimum Essay Example for Free

obtain minimal EssayThe let of a combustion turbine by Big Bear Power from Goliath Co includes three plannings that we must examine to determine whether they should be include in the minimum film defrayment as defined in ASC 840.Provision 1This provision involves Big Bear paying $500,000 to its external counsel, and $1 million of legal fees to Goliath Co. The $1 million fee to Goliath Co. should be included in the minimum lease payment. This is supported by 840-10-25-6 which states Fees that are paid by the lessee to the owners of the special-purpose entity for structuring the lease transactionshall be included as part of minimum lease payments. The $500,000 to its external counsel should non be included because it was not an obligatory cost for the lease.Provision 2To determine if the penalty payment from a inadvertence would be included in the minimum lease payment, we look at ASC 840-10-25-14 Default obligations link up to nonperformance do not affect lease classifi cation if all of the following conditions exist a. The default covenant provision is customary in financing arrangements. b. The occurrence of the pillow study of default is objectively discoverable (for example, subjective acceleration clauses would not satisfy this condition). c. Predefined criteria, related solely to the lessee and its operations, have been established for the determination of the event of default. d. It is reasonable to assume, based on the facts and circumstances that exist at lease inception, that the event of default leave alone not occur. In applying this condition, it is expected that entities would consider recent trends in the lessees operations.If any of those conditions do not exist, thus the maximum amount that the lessee could be required to pay under the default covenant shall be included in minimum lease payments for purposes of applying paragraph 840-10-25-1 The first condition about the default covenant provision being customary does exist due to the note stating that this is a customary provision inleasing arrangements. The play along has positive cash flow and is in compliance with all its debt covenants, which supports Big Bears whimsey that the chance of default is low. Thus conditions 2 and 4 are met. Condition 3, which involves predetermined criteria in case of a default, does not seem to have been met. Since not all the conditions have been met, the default payment covenant shall be included in the minimum lease payment.Provision 3This provision states that Big Bears rent of $1 million will growing by the same percentage increase in the CPI. The most recent annual increase in CPI was 4%. 840-10-25-4 states that lease payments that suppose on an existing index or sate, such as the CPI or prime interestingness rate, shall be included in minimum lease payments based on the index. Therefore later on the first year, the minimum lease payment will rise by $40,000 per year or $3,333.33 per month.