Question

Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a finance lease. At the time of the sale, the gain should be reported as

Answer 1

Answer:

a deferred gain

Explanation:

Deferred gain occurs when the recipient of the proceeds or profits from a transaction do not collect it all upfront. Some of the gain is not collected now but deferred to some future time.

It is referred to as unrealised revenue and is represented on the balance sheet as a liability.

In the given scenario Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. This means not all the gains from the sale are received now.

So this is a deferred gain.