LAS owns a building in North Bay.LAS enters into an agreement with BH as follows: LAS sells the building to BH on 1/1/2014 for $2,900,000 (which was the building's fair value on that date)and immediately leases it back for $500,000 per year for 10 years.The historical cost of the building was $9,000,000 and accumulated amortization amounted to $7,000,000.The net effect of this transaction on the statement of comprehensive income in the year of sale would be:

Question

Quizplus · Accepted Answer

The gain on sale is $900,000 ($2,900,000 - ($9,000,000 - $7,000,000)). The leaseback is an operating lease, so the lease payment of $500,000 is an expense. The net effect is a reduction of $410,000 ($500,000 lease expense - $90,000 gain recognized in the year).

LAS Owns a Building in North Bay