A Company Sells a Building to a Bank in 2011

question 7

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 2012?

• A) $0.
• B) U.S. GAAP income is $20,000 higher.
• C) IFRS income is $80,000 lower.
• D) IFRS income is $60,000 lower.
• E) IFRS income is $80,000 higher. Because the entire gain is recognized immediately under IFRS, income is higher than U.S. GAAP. In 2012, there is no IFRS recognition and there is one year amortized revenue recognition for U.S. GAAP.

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Definitions:

British Monarchy

The constitutional monarchy ruling over the United Kingdom and its overseas territories, with a history that stretches back over a thousand years.

Articles of Confederation

The first constitution of the United States, ratified in 1781, which created a loose confederation of sovereign states and a weak central government.

Continental Congress

The convention of delegates from the Thirteen Colonies that became the governing body of the United States during the American Revolution.

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