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On January 1 2017 Merchant Co sold a tractor to Swanson Inc. and simultaneously leased it back for five years The tractor s fair value is $250000 but its carrying value on Merchant s books

On January 1, 2017, Merchant Co. sold a tractor to Swanson Inc. and simultaneously leased it back for five years. The tractor s fair value is $250,000, but its carrying value on Merchant s books prior to the transaction was $200,000. The tractor has a six-year remaining estimated useful life, and Merchant and Swanson both used 8% interest in evaluating the transaction. Merchant has agreed to make five payments of $57,976 beginning January 1, 2017. Required: 1. What type of a lease is this for Merchant under ASC 840 and why? 2. Compute the amount of Merchant s gain on the transaction under ASC 840 and explain how Merchant will account for it. 3. Prepare the January 1, 2017, entries on Merchant s books to account for the sale and leaseback under ASC 840. 4. Explain how your answers would change under ASU 2016-02 (ASC 842).

Apr 22 2020 View more View Less

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