C is corrent. ASC Topic 840 generally treats a sale-leaseback as a single financing transaction in which any profit on the sale is deferred and amortized by the seller. However, ASC Topic 840 amends this general rule when either only a minor part of the remaining use of the leased asset is retained (case 1), or when more than a minor part but less than substantially all of the remaining use of the leased asset is retained (case 2). Case 1 occurs when the PV of the lease payments is 10% or less of the FV of the sale-leaseback property. Case 2 occurs when the leaseback is more than minor but does not meet the criteria of a capital lease. This is an example of case 1, because the PV of the lease payments ($34,100) is equal to or less than 10% of the FV of the asset ($360,000). ASC Topic 840 specifies that under these circumstances, the full gain ($360,000 – $330,000 = $30,000) is recognized, and none is deferred.
A is incorrect. ASC Topic 840 generally treats a sale-leaseback as a single financing transaction in which any profit on the sale is deferred and amortized by the seller. However, ASC Topic 840 amends this general rule when either only a minor part of the remaining use of the leased asset is retained (case 1), or when more than a minor part but less than substantially all of the remaining use of the leased asset is retained (case 2). Case 1 occurs when the PV of the lease payments is 10% or less of the FV of the sale-leaseback property. Case 2 occurs when the leaseback is more than minor but does not meet the criteria of a capital lease. This is an example of case 1, because the PV of the lease payments ($34,100) is equal to or less than 10% of the FV of the asset ($360,000). ASC Topic 840 specifies that under these circumstances, the full gain ($360,000 – $330,000 = $30,000) is recognized, and none is deferred.
B is incorrect. ASC Topic 840 generally treats a sale-leaseback as a single financing transaction in which any profit on the sale is deferred and amortized by the seller. However, ASC Topic 840 amends this general rule when either only a minor part of the remaining use of the leased asset is retained (case 1), or when more than a minor part but less than substantially all of the remaining use of the leased asset is retained (case 2). Case 1 occurs when the PV of the lease payments is 10% or less of the FV of the sale-leaseback property. Case 2 occurs when the leaseback is more than minor but does not meet the criteria of a capital lease. This is an example of case 1, because the PV of the lease payments ($34,100) is equal to or less than 10% of the FV of the asset ($360,000). ASC Topic 840 specifies that under these circumstances, the full gain ($360,000 – $330,000 = $30,000) is recognized, and none is deferred.
D is incorrect. ASC Topic 840 generally treats a sale-leaseback as a single financing transaction in which any profit on the sale is deferred and amortized by the seller. However, ASC Topic 840 amends this general rule when either only a minor part of the remaining use of the leased asset is retained (case 1), or when more than a minor part but less than substantially all of the remaining use of the leased asset is retained (case 2). Case 1 occurs when the PV of the lease payments is 10% or less of the FV of the sale-leaseback property. Case 2 occurs when the leaseback is more than minor but does not meet the criteria of a capital lease. This is an example of case 1, because the PV of the lease payments ($34,100) is equal to or less than 10% of the FV of the asset ($360,000). ASC Topic 840 specifies that under these circumstances, the full gain ($360,000 – $330,000 = $30,000) is recognized, and none is deferred.
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