Question

Assume that a manufacturing company usually pays a waste company(by the pound) to haul away manufacturing waste. Recently, a landfill gas company offered to buy a small portion of the waste for cash, saving the manufacturing facility a portion of its disposal costs and providing it with proceeds from the disposal.
The sale of manufacturing waste is not a primary business activity of the manufacturing; however, it will now result in inflow cash.

Which is more appropriate classifying this transaction as an increase in revenue or a decrease in expense, or be recorded as a gain

Assume you are the occupant of a building for which you have just entered into a 2-year lease agreement. Due to the short term nature of the arrangement; the lease will likely be classified as an operating issue.

The FASB is currently proposing fundamental changes to lease accounting, based in part on their view that a lessee’s obligation to make payments over the lease period meets the definition of a liability. Using language from CONN 6, state whether you believe the lessee’s obligation meets the definition of a liability.

Analysis- Why might a lessee’s obligation to meet the definition of a liability?

Answer 1

Answer and Explanation:

In the given case, there is no gain. It is a simple case of sales by the manufacturing company of its manufacturing waste. Therefore, this transaction should be recorded in terms of increase in revenue and decrease in expenses.

The amount by which the disposal costs are deduced should be recorded as decrease in expense.

The amount received from the landfill gas company to buy the waste should be recorded as increase in revenue.