Explain how the gain on the sale portion of the sale-leaseback transaction should be accounted for during the lease.

Please turn in a 500-700 words in length paper following APA formatting.

General Tools is seeking ways to maintain and improve cash balances. As company controller, you have proposed the sale and leaseback of much of the company’s equipment. As seller-lessee, General Tools would retain the right to essentially all of the remaining use of the equipment. The term of the lease would be six years. A gain would result on the sale portion of the transaction. The lease portion would be classified appropriately as a capital lease.

You previously convinced your CFO of the cash flow benefits of the arrangement, but now he doesn’t understand the way you will account for the transaction. “I really had counted on that gain to bolster this period’s earnings. What gives?” he wondered. “Put it in a memo, will you? I’m having trouble following what you’re saying to me.”

Required:

Write a memo to your CFO. Include discussion of each of these points:

How the sale portion of the sale-leaseback transaction should be accounted for at the lease’s inception.

How the gain on the sale portion of the sale-leaseback transaction should be accounted for during the lease.

How the leaseback portion of the sale-leaseback transaction should be accounted for at the lease’s inception.

The conceptual basis for capitalizing certain long-term leases.

Writing Assignment
The writing assignment will demonstrate writing across the curriculum responding to the topic selected in a 500-700 words paper. Please name your assignment file as ‘lastnamefirstinitial-ACCT-302-W8″, and submit by Wednesday midnight.
Turnitin
Turnitin.com is an excellent resource to check the content and quality of writing assignments and to avoid plagiarism. An Originality Report will be generated upon paper submission. The Originality Report does not actually recommend changes. It does point out where you may need to add a citation or quotation marks (if not already cited). Once you use it a few times, you will appreciate this tool, as it will assist you in improving quality and content, as well as avoid plagiarism. Your goal is to keep direct quotations to a minimum and to make sure that you do not just cut and paste material. Ensure that all your references are cited. A report less than 25% is acceptable for undergraduate level work.
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