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Topic: Sale-leaseback question from BISK (

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choisoo3
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Posted: 28 Aug 2011 at 16:38 \| IP Logged

on 6/30/yr1, Lang co. sold equipment with an estimated useful life of 11 yrs and immediately leased it back for 10 yrs. the equipment's carrying amount was $450,000; the sale price was $430,000; and the PV of the lease payments, which is equal to the fair value of the equipment, was $465,000. In its 6/30/yr1 B/S, what amount should Lang report as deferred loss?

A $35,000

B 20,000

C 15,000

D $0

Answer is B according to BISK, but i think the answer is A $35,000, which is the artificial loss. $20,000 is real economic loss, so it can not be deffered but recognized immediately.

KMCPA
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Posted: 28 Aug 2011 at 18:36 \| IP Logged

The gain is calculated based on the Sale Price and the
carrying amount. In this case its 430,000-450,000 = 20,000
Deferred Loss (Artificial)

Your correct that the loss here is artificial because its
below the FMV. So the loss is deferred and amortized over
the leaseback period.

If the NBV is greater than FMV then you would recognize the
loss immediately.

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