LAS Owns a Building in North Bay

question 13

Multiple Choice

LAS owns a building in North Bay.LAS enters into an agreement with BH as follows: LAS sells the building to BH on 1/1/2014 for $1,900,000 (the building's fair value on that date was $1,800,000) and immediately leases it back for $500,000 per year for 10 years.The remaining life of the building is estimated at 20 years.The historical cost of the building was $9,000,000 and accumulated amortization amounted to $7,000,000.Assuming that ASPE applies, and that the lease qualifies as a finance lease, the net effect of this transaction on the statement of comprehensive income in the year of sale would be:

• A)a reduction to net income of $490,000.
• B)a reduction to net income of $510,000.
• C)a reduction to net income of $495,000.
• D)a reduction to net income of $505,000.

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Definitions:

Stopwatch Time Study

A method of measuring the time taken to perform a task, using a stopwatch to record precise time intervals for analysis and optimization.

Average Observed Time

The mean time measured or recorded for a task or activity based on multiple observations under defined conditions.

Performance Rating

The assessment of an individual's or entity's performance against predefined standards or objectives, usually expressed in numerical or qualitative terms.

Personal Time Allowances

Additional time given to workers to account for personal needs, breaks, and minor delays that are part of the work process.