[Anonymous]

i believe the criteria for a major leaseback is if the PV of the min lease payments is 90% or greater of the FV. however, there is a question in the wiley test bank that seems to imply there is a rule regarding the useful life as well.

“In a sale leaseback transaction, the seller lessee retains the right to substantially all the remaining use of the equipment sold. The profit on the sale should be deferred and subsequently amortized by the lessee when the lease is classified as

a) Capital lease – No; Operating lease Yes

b) Capital- No; Operating – No

c) Capital – yes; operating – no

d) Capital – yes; operating- yes

It’s saying D is the correct answer:

This answer is correct. Per ASC Topic 840, any profit related to a sale-leaseback transaction in which the seller-lessee retains the right to substantially all of the remaining use of the equipment sold shall be deferred and amortized in proportion to the amortization of the leased asset if the transaction is classified as a capital lease. If the transaction is classified as an operating lease (e.g., if the lease begins in the last 25% of the asset’s economic life), the profit shall be deferred and amortized in proportion to the related gross rental charged to expense over the lease term. It is important to note that losses are recognized immediately for either a capital or operating lease.

[Anonymous]

i picked c) because i thought if it was operating, part of the gain was recognized not deferred

[Anonymous]

i picked c) because i thought if it was operating, part of the gain was recognized not deferred

[musicamor]

Think of the matching concept as well as the notion of being conservative. Even in an operating lease scenario, the gain would still be deferred so as to match revenue with expense over the term of the operating lease.

Texas CPA - licensed in 2012!!!

[musicamor]

Think of the matching concept as well as the notion of being conservative. Even in an operating lease scenario, the gain would still be deferred so as to match revenue with expense over the term of the operating lease.

Texas CPA - licensed in 2012!!!

[Author]

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