In Its 2016 Annual Report to Shareholders,Douglas-Roberts International Corporation Disclosed

question 130

Essay

In its 2016 annual report to shareholders,Douglas-Roberts International Corporation disclosed the following:
In 2016,the company entered into three sale-leaseback arrangements with various financial institutions.Under the first arrangement,truck cab assembly machinery with a net book value of $58 million was sold for $60 million and leased back under an eight-year operating lease agreement.Under the second arrangement,tooling and related engine manufacturing equipment with a net book value of $261 million was sold for $260 million and leased back under an 11.5-year operating lease agreement.The third arrangement consisted of additional engine manufacturing equipment with a net book value of $62 million that was sold for $65 million and leased back under a 10-year operating lease agreement.The gain on these transactions was deferred and is being amortized over the terms of the lease agreements.
Discuss the most likely reasons for these three transactions,and explain the basis for the last sentence of the disclosure.

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Definitions:

Tax Cuts

Reductions in the amount of taxes imposed by a government on its citizens, often aimed at stimulating economic growth or achieving specific policy objectives.

Progressive Taxes

Taxation that takes a larger percentage of income from high-income earners than from low-income earners, aimed at reducing income inequality.

Ability-To-Pay Principle

The concept that taxes should be levied according to an individual's or entity's ability to bear them, typically resulting in higher earners paying more taxes.

Lump-Sum Taxes

Taxes that are a fixed amount, not dependent on the taxpayer's income or activities, thus they do not distort economic decisions.