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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
If a company sells an asset for a profit of $175,000 and immediately leases it back with a capital lease, the gain is recognized
A. immediately as an ordinary gain.
B. immediately as an extraordinary gain.
C. over the life of the lease in proportion to the rental payment.
D. over the life of the lease using the same rate and life used to amortize the leased asset.
Answer
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