LAS Owns a Building in North Bay

question 62

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 $2,900,000 (which was the building's fair value on that date) and immediately leases it back for $500,000 per year for 10 years.The historical cost of the building was $9,000,000 and accumulated amortization amounted to $7,000,000.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 $500,000.
• B) a reduction to net income of $590,000.
• C) a reduction to net income of $410,000.
• D) a reduction to net income of $400,000.

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