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1. Please determine whether the proposal to sublease will qualify as a termination of a finance lease. m) Keywords: 840-10-40-2: Leases - Overall - Derecognition
1. Please determine whether the proposal to sublease will qualify as a termination of a finance lease. m) Keywords: 840-10-40-2: "Leases - Overall - Derecognition - Lessees". Codification Reference(s): The Transaction is terminated as an original Lease Agreement, if the Nature of Sublease is that Original lessee is relieved of the primary obligation under the original lease. If the nature of a sublease is such that the original lessee is relieved of the primary. obligation under the original lease, the transaction shall be considered a termination of the original lease agreement. 2 What's the appropriate accounting treatment for the sublease? (1) Keywords: 840-10-40-1 Codification Reference(s): A termination of a capital lease before the expiration of the lease term, is accounted by the lessee by removing the asset and obligation, with gain or loss recognized for the difference. Rental expense recorded previously in accordance with paragraph 840-10-25-35 shall be. reversed into income at such time that it is probable that the specified target will not be met. 3 Based on your analyses above, please write a short business paper to the management of Dowell Chemical Corporation to discuss the accounting treatments related to the possible termination of a finance lease and the proposal of sublease. The paper should be typed with double-spaced one or two pages. You need to appropriately cite the codification references listed above to support your arguments. 1. Please determine whether the proposal to sublease will qualify as a termination of a finance lease. m) Keywords: 840-10-40-2: "Leases - Overall - Derecognition - Lessees". Codification Reference(s): The Transaction is terminated as an original Lease Agreement, if the Nature of Sublease is that Original lessee is relieved of the primary obligation under the original lease. If the nature of a sublease is such that the original lessee is relieved of the primary. obligation under the original lease, the transaction shall be considered a termination of the original lease agreement. 2 What's the appropriate accounting treatment for the sublease? (1) Keywords: 840-10-40-1 Codification Reference(s): A termination of a capital lease before the expiration of the lease term, is accounted by the lessee by removing the asset and obligation, with gain or loss recognized for the difference. Rental expense recorded previously in accordance with paragraph 840-10-25-35 shall be. reversed into income at such time that it is probable that the specified target will not be met. 3 Based on your analyses above, please write a short business paper to the management of Dowell Chemical Corporation to discuss the accounting treatments related to the possible termination of a finance lease and the proposal of sublease. The paper should be typed with double-spaced one or two pages. You need to appropriately cite the codification references listed above to support your arguments
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