In Its 2013 Annual Report to Shareholders, Douglas-Roberts International Corporation

question 159

Essay

In its 2013 annual report to shareholders, Douglas-Roberts International Corporation disclosed the following:
In 2013, 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.

---

Definitions:

Democracy

A form of government in which power is held by the people, who exercise power directly or through elected representatives.

Popular Sovereignty

The principle that the authority of a state and its government is created and sustained by the consent of its people, through elected representatives.

Constitutional Amendment

A formal change or addition to a constitution, often requiring a specific process of proposal and ratification by the government or the people.

Nationwide Election

An election process that occurs across an entire country to select national leaders or to decide on national policies.