Question

11. A company sells an office building that has appreciated in value and subsequently enters into...

11. A company sells an office building that has appreciated in value and subsequently enters into a lease for the space. Which of the following statements is an accurate description of both the impact, and the cause of the impact, that the sale-leaseback transaction will have on the company’s income statement?

(A) Increased interest expense due to the new lease

(B) Higher taxable income will occur in year of sale because of a gain on sale

(C) Cash flow will increase because the mortgage has been paid off

(D) Higher taxable income will be realized because lease payments are not deductible

Homework Answers

Answer #1

Option B:

Higher taxable income will happen in the year of sale becasue the company has sold the office building after price appreciation. Thus, the difference between the purchase price and sale price will be charged as capital gains tax. Increasing the overall tax liability in the year of sales.

Option A : False : If the building was bought on loan earlier, then the interest expense would not change much, as the loan has been replaced by lease.

Option C : False : Cash flow will not chage much because lease payments will be there instead of mortgage payment.

Option D : False : Payments related to lease are tax deductible.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company sells an office building that has appreciated in value and subsequently enters into a...
A company sells an office building that has appreciated in value and subsequently enters into a lease for the space. Which of the following statements is an accurate description of both the impact, and the cause of the impact, that the sale-leaseback transaction will have on the company’s income statement? (A) Increased interest expense due to the new lease (B) Higher taxable income will occur in year of sale because of a gain on sale (C) Cash flow will increase...
You are considering the purchase of a small office building. The office building specializes in offering...
You are considering the purchase of a small office building. The office building specializes in offering facilities to small startup firms who are looking to avoid long-term commitments while their businesses are growing. Tenants sign one-year leases and may renew at market rates, if they so desire. The building is configured with 25 suites. Five (5) suites each have 4,000 useable square feet and ten (10) each have 2,500 usable square feet. The remaining ten (10) suites each have 1,000...
Gretta has moved on from her CPA career and now runs her own company, having acquired...
Gretta has moved on from her CPA career and now runs her own company, having acquired it from a former client who was retiring. It is engaged in light manufacturing, assembly and distribution of small parts to the automotive industry. She holds a majority of the corporate stock in GD Ventures, Inc., with her business partner, Dieter, holding the remaining shares. They formed a limited liability company as equal partners to purchase and manage the land and building that the...
Partnership accounting exercise. Compute basis for each partner and income/loss allocable to each partner at the...
Partnership accounting exercise. Compute basis for each partner and income/loss allocable to each partner at the end of every year or when they exit the partnership. Art is an experienced and established real estate operator. He has managed buildings successfully for others for over ten years and would like to start managing his own buildings. Buck has a lot of money and would like to invest in real estate if he can find a competent property manager. Chat has a...
QUESTION 11 Mutual funds that carefully select stocks and bonds--relying on smart managers' skills--generally outperform passive,...
QUESTION 11 Mutual funds that carefully select stocks and bonds--relying on smart managers' skills--generally outperform passive, index funds, even though they charge higher fees. True False 5 points    QUESTION 12 If you wanted to buy shares of common stock in IBM, what market would you make a purchase in? New York Stock Exchange S&P 500 Tokyo Stock Exchange Nasdaq 5 points    QUESTION 13 All else equal, an adjustable rate mortgage is riskier to the borrower than a fixed...
1) Jo is a Canadian citizen. In March of 2020, Jo's employer transferred Jo to the...
1) Jo is a Canadian citizen. In March of 2020, Jo's employer transferred Jo to the United States. Jo's spouse and child moved with Jo at that time. Jo chose not to sell the family's home, and instead, now lends it to extended family from overseas during the winter months. Jo has five weeks of vacation each summer, at which time the family returns to Canada and stay in their house. Jo did not cancel a long-standing country club membership,...
Review the Robatelli's Pizzeria Case Study. Develop another internal controls system, but this time, in the...
Review the Robatelli's Pizzeria Case Study. Develop another internal controls system, but this time, in the purchases and fixed assets business areas. Prepare a 12- to 16-slide presentation describing the purchases and fixed assets business areas. Be sure to incorporate speaker notes as well as appropriate visuals, graphics, fonts, etc. Include any associated risk in these areas. Describe specific internal controls that include authorization of transactions, segregation of duties, adequate records and documentation, security of assets, and independent checks and...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From the April 2004 Issue Save Share 8.95 In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry...
After reading the following article, how would you summarize it? What conclusions can be made about...
After reading the following article, how would you summarize it? What conclusions can be made about Amazon? Case 12: Amazon.com Inc.: Retailing Giant to High-Tech Player? (Internet Companies) Overview Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon), was incorporated in the state of Washington in July 1994, and sold its first book in July 1995. In May 1997, Amazon (AMZN) completed its initial public offering and its common stock was listed on the NASDAQ Global Select Market. Amazon quickly...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT