Sale-leaseback accounting: prove the sale first
Determine whether a transfer qualifies as a sale, record seller-lessee entries, and distinguish failed-sale financing under ASC 842.
The decision that earns the point
Define the business decision and required output
A seller-lessee applies the revenue sale criteria before using sale-leaseback accounting. If control transfers, the seller-lessee derecognizes the asset, recognizes the leaseback right-of-use asset and lease liability, and recognizes the sale result under the applicable guidance. If the transfer is not a sale, the seller-lessee keeps the asset and records the proceeds as a financial liability.
Exam use
BAR can test sale qualification, repurchase options, off-market terms, seller-lessee entries, leaseback measurement, gain or loss, and failed-sale financing.
Your scratch-paper plan
Solve it in three moves
- 1
Test control transfer
Apply the sale criteria and evaluate repurchase rights before removing the underlying asset.
FASB ASC Topic 842: Leases - 2
Measure the leaseback
When a sale occurs, recognize the lease liability and right-of-use asset using the leaseback terms and required measurement model.
FASB ASC Topic 842: Leases - 3
Route failed sales to financing
When control does not transfer, retain the asset and treat proceeds as a financial liability rather than sale revenue.
FASB ASC Topic 842: Leases
Worked problem
Work the facts before choosing the answer
A company transfers equipment with a $600,000 carrying amount for $800,000 and immediately leases it back. A substantive fixed-price repurchase option lets the company reacquire the equipment throughout the lease term.
CPAPass exam analysis using the stated assumptions
Show the work
The repurchase option prevents the buyer-lessor from obtaining control under the simplified facts, so the transfer does not qualify as a sale.
Rule source: FASB ASC Topic 842: LeasesAnswer
Keep the $600,000 equipment on the seller-lessee's books and record the $800,000 proceeds as a financial liability; do not recognize a $200,000 sale gain.
Rule source: FASB ASC Topic 842: LeasesDo it now
Test the same decision with a fresh question
Start with free BAR practice. Create an account only when you want the 5-day no-card CPAPass trial and continued section practice.
The trap and the repair
Common trap
Starting with sale price minus book value assumes the transfer is a sale. That shortcut can create a gain and derecognition even when a repurchase option prevents control transfer.
Repair
Write sale or failed sale at the top only after testing control, then build entries from that classification.
Authority and scope boundary
FASB Topics 606 and 842 control U.S. GAAP sale-leaseback accounting, and the Blueprint assigns seller-lessee entries to BAR. The existing FAR lease owner retains general lessee and lessor classification and measurement.
2026 Uniform CPA Examination Blueprints and FASB ASC Topic 842: Leases were reviewed on 2026-08-14. Check a newer authority when the effective date or facts change.
Sale test before entries
Classification changes the entire accounting model
The transfer either qualifies as a sale with a leaseback or remains an asset financed by proceeds.
| Fact pattern | Seller-lessee accounting | Entry checkpoint | Authority |
|---|---|---|---|
| Control transfers and terms are at market | Derecognize asset and recognize sale plus leaseback balances | Calculate sale result and ASC 842 leaseback measurement | FASB ASC Topic 842: Leases |
| Repurchase right prevents control transfer | Retain asset and recognize financial liability | No sale gain or right-of-use asset from the failed transfer | FASB ASC Topic 842: Leases |
| Sale price differs from fair value | Adjust for off-market financing or prepaid rent as required | Do not bury off-market terms in the sale gain | FASB ASC Topic 842: Leases |
| Leaseback is established after a sale | Apply seller-lessee lease classification and measurement | Keep sale analysis distinct from later lease expense | FASB ASC Topic 842: Leases |
After a miss
Review sale-leaseback in two passes
- 1
Ignore the proposed gain and decide first whether control transferred.
- 2
Build the balance-sheet entry for either sale accounting or failed-sale financing and prove every debit and credit.
- 3
Work a new BAR scenario with a changed repurchase or fair-value fact and explain why the classification changes.
Your exam workflow
- Step 1Identify the requirementApply the sale criteria and evaluate repurchase rights before removing the underlying asset.FASB ASC Topic 842: Leases
- Step 2Classify the factsWhen a sale occurs, recognize the lease liability and right-of-use asset using the leaseback terms and required measurement model.FASB ASC Topic 842: Leases
- Step 3Apply the authorityWhen control does not transfer, retain the asset and treat proceeds as a financial liability rather than sale revenue.FASB ASC Topic 842: Leases
- Step 4Check the outputKeep the $600,000 equipment on the seller-lessee's books and record the $800,000 proceeds as a financial liability; do not recognize a $200,000 sale gain.FASB ASC Topic 842: Leases
Keep the next step narrow
Quick questions
What is the key rule?
A seller-lessee applies the revenue sale criteria before using sale-leaseback accounting. If control transfers, the seller-lessee derecognizes the asset, recognizes the leaseback right-of-use asset and lease liability, and recognizes the sale result under the applicable guidance. If the transfer is not a sale, the seller-lessee keeps the asset and records the proceeds as a financial liability.
How can this topic be tested on the CPA Exam?
BAR can test sale qualification, repurchase options, off-market terms, seller-lessee entries, leaseback measurement, gain or loss, and failed-sale financing.
What mistake most often changes the result?
Starting with sale price minus book value assumes the transfer is a sale. That shortcut can create a gain and derecognition even when a repurchase option prevents control transfer. Write sale or failed sale at the top only after testing control, then build entries from that classification.
Where should I practice the decision?
After the worked example, open the BAR free-practice link and work a fresh question that tests the same decision. If the miss depends on Lease accounting under ASC 842, review that handoff before trying another set.