Question

If none of the five lease tests are satisfied in a sale-leaseback transaction, which of the following statements is incorrect?

The seller-lessee continues to depreciate the asset.

The seller-lessee amortizes deferred profit or loss in proportion to the rental payments over operating lease asset period.

The purchaser-lessor records a gain.

The seller-lessee records the lease as an operating lease.

Answer 1

If none of the five lease tests are satisfied in a sale-leaseback transaction, the seller-lessee continues to depreciate the asset, the seller-lessee records the lease as an operating lease, and the purchaser-lessor does not record a gain.

Step-by-step explanation:

If none of the five lease tests are satisfied in a sale-leaseback transaction, the seller-lessee continues to depreciate the asset, the seller-lessee records the lease as an operating lease, and the purchaser-lessor does not record a gain. The seller-lessee does not amortize deferred profit or loss in proportion to the rental payments over the operating lease asset period.