Question

Brown Properties entered into a sale-leaseback transaction. Brown retains the right to substantially all of the remaining use of the property. A gain resulting from the sale should: Multiple Choice Not be reported. Be offset against losses from similar transactions. Be deferred at the time of the sale-leaseback and subsequently amortized. Be recognized in earnings at the time of the sale-leaseback.

Answer 1

Deferred at the time of the sale-leaseback and subsequently amortized.

Step-by-step explanation:

Brown properties is involved in a sales-leaseback transaction, and still has the right to substantially all of the remaining use of the property. So the company will have a higher income in the year when the revenue from sales was made.

The company will make less when they are paying the lease interest expense in subsequent years. So it will be better to defer the gain from the sale and armortisenit over the lease term. This will cancel out the loss realised from lease Interest expense.