In a sale-leaseback transaction, the seller-lessee transfers an asset to a buyer-lessor and leases it back. If the transfer does NOT meet the requirements for a sale under ASC 606 (e.g., repurchase option exists), how should the seller-lessee account for the transaction?

Answer options:

Record a sale and a new lease.

Remove the asset and record a gain.

Continue to report the asset and record a financing liability for proceeds received.

Record the proceeds as revenue immediately.

How to approach this question

Failed Sale-Leaseback = Financing. Keep asset, depreciate it. Record cash received as a Loan Payable (Liability).

Full Answer

C.Continue to report the asset and record a financing liability for proceeds received.✓ Correct

If the transfer does not qualify as a sale (e.g., due to a repurchase option that prevents control transfer), it is accounted for as a financing transaction. The asset remains on the books, and proceeds are a liability.

Common mistakes

Treating it as a sale despite the failure of criteria.

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