ABC sells an asset with a FMV of $1,000,000 to XYZ and immediately leases back the asset. Asset has book value to ABC of $900,000 (original cost of 1,200,000). Sales price was $1,000,000 and occurred on January 1, 2018, Lease term is 10 years and asset has remaining useful life of 15 years. Present value of lease payments is $800,000, Implicit rate is known by Lessee, Asset residual value is expected to be $300,000 and none of the residual value is guaranteed by the Lessee, Based on these facts O ABC will recognize gain on the sale of the asset and recognize an operating lease for the lease-back of the asset. CRABC will account for this as a borrowing transaction. XYZ will account for this as a lending transaction KD Both b and c. QUESTION 23 ABC sells an asset with a FMV of $1,000,000 to XYZ and immediately leases back the asset. Asset has book value to ABC of $900,000 (original cost of 1,200,000). Sales price was $1,000,000 and occurred on January 1, 2018. Lease term is 12 years and asset has remaining useful life of 12 years. Present value of lease payments is $1,000,000. Implicit rate is known by Lessee. Asset residual value is expected to be $0. Based on these facts E ABC will recognize gain on the sale of the asset and recognize an operating lease for the lease-back of the asset. KI ABC will account for this as a borrowing transaction. KIN XYZ will account for this as a lending transaction KBoth b and c.
ABC sells an asset with a FMV of $1,000,000 to XYZ and immediately leases back the asset. Asset has book value to ABC of $900,000 (original cost of 1,200,000). Sales price was $1,000,000 and occurred on January 1, 2018, Lease term is 10 years and asset has remaining useful life of 15 years. Present value of lease payments is $800,000, Implicit rate is known by Lessee, Asset residual value is expected to be $300,000 and none of the residual value is guaranteed by the Lessee, Based on these facts O ABC will recognize gain on the sale of the asset and recognize an operating lease for the lease-back of the asset. CRABC will account for this as a borrowing transaction. XYZ will account for this as a lending transaction KD Both b and c. QUESTION 23 ABC sells an asset with a FMV of $1,000,000 to XYZ and immediately leases back the asset. Asset has book value to ABC of $900,000 (original cost of 1,200,000). Sales price was $1,000,000 and occurred on January 1, 2018. Lease term is 12 years and asset has remaining useful life of 12 years. Present value of lease payments is $1,000,000. Implicit rate is known by Lessee. Asset residual value is expected to be $0. Based on these facts E ABC will recognize gain on the sale of the asset and recognize an operating lease for the lease-back of the asset. KI ABC will account for this as a borrowing transaction. KIN XYZ will account for this as a lending transaction KBoth b and c.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC sells an asset with a FMV of $1,000,000 to XYZ and immediately leases back the asset. Asset has book value to ABC of $900,000 (original
cost of 1,200,000). Sales price was $1,000,000 and occurred on January 1, 2018, Lease term is 10 years and asset has remaining useful life of
15 years. Present value of lease payments is $800,000. Implicit rate is known by Lessee. Asset residual value is expected to be $300,000 and
none of the residual value is guaranteed by the Lessee, Based on these facts
O ABC will recognize gain on the sale of the asset and recognize an operating lease for the lease-back of the asset.
CRABC will account for this as a borrowing transaction.
O XYZ will account for this as a lending transaction
O Both b and c.
QUESTION 23
ABC sells an asset with a FMV of $1,000,000 to XYZ and immediately leases back the asset. Asset has book value to ABC of $900,000 (original
cost of 1,200,000). Sales price was $1,000,000 and occurred on January 1, 2018. Lease term is 12 years and asset has remaining useful life of
12 years. Present value of lease payments is $1,000,000. Implicit rate is known by Lessee. Asset residual value is expected to be $0. Based on
these facts
ABC will recognize gain on the sale of the asset and recognize an operating lease for the lease-back of the asset.
ABC will account for this as a borrowing transaction.
KD XYZ will account for this as a lending transaction
Both b and c.
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