A Company Sells a Building to a Bank in 2011

question 13

Multiple Choice

A company sells a building to a bank in 2011 at a gain of $100,000 and immediately leases the building back for period of five years. The lease is accounted for as an operating lease. The building was originally purchased for $200,000 and currently had a book value of $50,000 at the date of the sale.
-As a result of the sale and leaseback transaction in 2011, what is the difference between income using U.S. GAAP and IFRS in 2011?

• A) U.S. GAAP income is $80,000 higher.
• B) U.S. GAAP income is $100,000 higher.
• C) IFRS income is $50,000 lower.
• D) IFRS income is $100,000 lower.
• E) IFRS income is $80,000 higher. Because the entire gain is recognized immediately under IFRS, income is higher than U.S. GAAP.

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Definitions:

Protective Tariff

A tariff imposed to protect domestic industries from foreign competition by increasing the cost of imported goods.

Agrarian

Pertaining to agriculture or the agricultural way of life.

Democratic Societies

Communities or nations characterized by a political system in which power is vested in the people, who rule either directly or through freely elected representatives.

Washington Administration

The period of George Washington's presidency from 1789 to 1797, marked by the establishment of many protocols in the executive branch of the U.S. government.