On December 31, 20X1, Dirk Corp. sold Smith Co. two airplanes and simultaneously leased them back. Additional information pertaining to the sale-leasebacks follows:
Plane 1 Plane 2
——– ———-
Sales price $600,000 $1,000,000
Carrying amount, December 31, 20X1 $100,000 $ 550,000
Remaining useful life, December 31, 20X1 10 years 35 years
Lease term 8 years 3 years
Annual lease payments $100,000 $ 200,000
In its December 31, 20X1, balance sheet, what amount should Dirk report as deferred gain on these transactions?
A.
$950,000
B.
$500,000
C.
$450,000
D.
$0
So Plane 1 is Capital and Plane 2 isn't. But then I dont get why all gain is deferred? I thought this is a “minor” transfer 10-90% we have to recognized what we keep. I took 100,000/600,000 = 17% to get the minor classification. I thought we only defer all gain if its greater than 90% transferring substantial ownership. What am I missing?
.