LAS Owns a Building in North Bay

question 45

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 does not qualify 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 $495,000.
• B) a reduction to net income of $505,000.
• C) a reduction to net income of $490,000.
• D) a reduction to net income of $510,000.

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