ight to essentially all of the remaining use of the equipment. The terms of the lease would be 6 years. You previously convinced your CFO of the cash flow benefits of the arrangement but now he doesn't understand the way you will account for the transaction. "I really had counted on that gain on the sale portion of the transaction to bolster this period's earnings. What gives?" he wondered. "Put it in a memo will you? I'm having trouble following what you are saying to me." Include in your memo: 1. How the transaction should be accounted for.
General Tools is seeking ways to maintaint and improve cash balances. As company controller, you have proposed the sale and leaseback of much of the companys equipment. As seller-lessee, General Tools would retain the right to essentially all of the remaining use of the equipment. The terms of the lease would be 6 years. You previously convinced your CFO of the
Include in your memo:
1. How the transaction should be accounted for.
2. Why General Tools will not get the gain the CFO had counted on.
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