famucpa
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| Posted: 29 Jul 2010 at 10:56 | IP Logged
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Can someone tell me where the 500k comes from? Thanks!
CPA-00414 Type1 M/C A-D Corr Ans: B PM#20 F 5-02
18. CPA-00414 PI May 93 #31 Page 27
On December 31, 1992, 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, 12/31/92 $100,000 $550,000
Remaining useful life, 12/31/92 10 years 35 years
Lease term 8 years 3 years
Annual lease payments $100,000 $200,000
In its December 31, 1992, balance sheet, what amount should Dirk report as deferred gain on these
transactions?
a. $950,000
b. $500,000
c. $450,000
d. $0
CPA-00414 Explanation
Choice "b" is correct. Because no present value information is given, we must assume that the Plane 1
lease is "major." It qualifies as a capital lease because it meets the 75% test (8 year term out of 10 year
life is 80%). In "major" sale-leasebacks, all gain is deferred. We must also assume that the Plane 2
lease is "minor" because it will be classified as an operating lease (it fails all "OWNS" tests we are able to
perform based on the given information). In "minor" sale-leasebacks, there is no deferral.
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