You work for DCC, and have been asked to determine the appropriate accounting treatment of a proposed sublease of warehouses that DCC has used for product storage. You checked your college intermediate text book, but found nothing. You realize you will have to do some research on the topic. You will have to utilize the FASB Codification. Pertinent Facts: 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 leases 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 amortization on a straight-line basis at the end of each fiscal year. Today, Dee Anderson, DCCs controller, explained a proposal to sublease the underused warehouses to Am Filters, Inc., for the remaining four years of the lease term. Am Filters would be substituted as lessee under the original lease agreement. As the new lessee, it would become the primary obligor under the agreement, and DCC would not be secondarily liable for fulfilling the obligations under the lease agreement. Dee Anderson asks you Check on how we would need to account for this and get back to me by the end of the day.

Required: 1. After the first full year under the warehouse lease, what is the balance in DCCs lease liability? 2. After the first full year under the warehouse lease, what is the carrying amount (after accumulated amortization) of DCCs leased warehouses? 3. Obtain the relevant authoritative literature on accounting for de-recognition of finance leases by lessees using the FASBs Codification Research System. ( You might gain access from the FASB website ( www.fasb.org ), from your school library, or some other source.) To determine the appropriate accounting treatment for the proposed sublease, what is the specific seven-digit Codification citation (XXX-XX-XX) that DCC l would rely on to determine: a. if the proposal will qualify as a termination of a finance lease, and b. the appropriate accounting treatment for the sublease? 4. What, if any, journal entry would Dowell record in connection with the sublease?