"I don't see that in my intermediate accounting text I saved from college," you explain to another member of the accounting division of Dowell Chemical Corporation. "This will take some research. Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage. Dowell leased the warehouses one year ago on December 31. The five-year lease agreement called for Dowell to make quarterly lease payments of $2,398,303, payable each December 31, March 31, June 30, and September 30, with the first payment at the lease's beginning. As a finance lease. Dowell had recorded the right-of-use asset and liability at $40 million, the present value of the lease payments at 8%. Dowell records depreciation on a straight-line basis at the end of each fiscal year. Today, Jason True, Dowell's controller, explained a proposal to sublease the underused warehouses to American Tankers, Inc. for the remaining four years of the lease term. American Tankers would be substituted as lessee under the original lease agreement. As the new lessee, it would become the primary obligor under the agreement, and Dowell would not be secondarily liable for fulfilling the obligations under the lease agreement. "Check on how we would need to account for this and get back to me," he had said. Required: Answer the following two questions related to derecognition of finance leases by lessees. Students need to use the FASB's Codification Research System to obtain the relevant authoritative literature and explain the specific Codification citation that Dowell would rely on. 1. Determine whether the proposal to sublease will qualify as a termination of a finance lease. 2. What's the appropriate accounting treatment for the sublease? "I don't see that in my intermediate accounting text I saved from college," you explain to another member of the accounting division of Dowell Chemical Corporation. "This will take some research. Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage. Dowell leased the warehouses one year ago on December 31. The five-year lease agreement called for Dowell to make quarterly lease payments of $2,398,303, payable each December 31, March 31, June 30, and September 30, with the first payment at the lease's beginning. As a finance lease. Dowell had recorded the right-of-use asset and liability at $40 million, the present value of the lease payments at 8%. Dowell records depreciation on a straight-line basis at the end of each fiscal year. Today, Jason True, Dowell's controller, explained a proposal to sublease the underused warehouses to American Tankers, Inc. for the remaining four years of the lease term. American Tankers would be substituted as lessee under the original lease agreement. As the new lessee, it would become the primary obligor under the agreement, and Dowell would not be secondarily liable for fulfilling the obligations under the lease agreement. "Check on how we would need to account for this and get back to me," he had said. Required: Answer the following two questions related to derecognition of finance leases by lessees. Students need to use the FASB's Codification Research System to obtain the relevant authoritative literature and explain the specific Codification citation that Dowell would rely on. 1. Determine whether the proposal to sublease will qualify as a termination of a finance lease. 2. What's the appropriate accounting treatment for the sublease