Joined: 10 Oct 2009 Location: United States
Online Status: Offline Posts: 974
Posted: 23 Nov 2009 at 17:42 | IP Logged
I had originally put cr depreciation expense and then changed it because the book said offset to depreciation expense in a valuation allowance account...
Well if you credit accumulated depreciation you are just reducing the book value of the asset and nothing is done to revenue or expenses so you would be in essence reducing the unearned gain and not transferring it anywhere.
When you reduce the unearned gain you have to include it in the income statement therefor we do this by reducing an expense.
Increasing accum depr would not let the unearned gain move to income statement ;)
hope im right lol
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Joined: 24 Oct 2009 Location: United States
Online Status: Offline Posts: 52
Posted: 23 Nov 2009 at 21:06 | IP Logged
I am using Wiley, so it says that the gain must be deferred and amortized (that's exactly what we can see in the replies posted)
...this deferred gain acts as an asset valuation allowance resulting in the net amount shown for the leased asset being equal to the same carrying value as if the sale and leaseback transaction had not occurred.
So, what Wiley means by asset valuation allowance is still a puzzle:(
First of all question 53 in wiley is a no brainer because the other choices are completely wrong.
I thought that this Deferred gain was supposed to be in the liability section of the balance sheet.
Apparently it is just an allowance titled "deferred gain" ---I assume it is a special case ;)
so on the balance sheet you will see:
Asset..........................xxxx Less:deferred gain (xxxx) ..................................xxxx
So we continue the asset on the books at its prior to sale leaseback carrying value. Then as we bleed the deferred gain down it reduces our depreciation expense. So our income will be a bit higher and our asset will become a bit more on the books.
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Topic: An asset valuation allowance
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