by The TaxResearchPro Team | Aug 6, 2015 | Accounting
Question I have a church client. One of their members is putting up solar panels with a fair market value of $15,000 on the church roof. The member retains ownership of the panels. The contract states that as the church incurs energy savings, the savings will be paid to the member until the $15,000 is paid off. At that time, title to the panels and future savings revert to the church. How do I book the set up, monthly payout to the member and end of contract? In general, how should equipment provided by church members be recorded? Answer We have a few questions to try to gain further insight into the fact pattern. First, is there interest being charged by the church member for the installment payment? If not, this probably would not be considered an arm’s length transaction, but possibly a bargain sale. Second, is the energy savings fixed per month or is it variable? Assuming that interest is being charged and the energy savings is fixed, we believe it may be appropriate to treat the transaction as a capital lease (FAS13). The following entries are necessary for a capital lease: At inception of lease: Debit Fixed assets account Credit Capital lease liability This above entry is made for the fair value of the property being leased Each Month: Debit Capital lease liability Debit Interest expense Credit Cash Please note that for tax purposes this would be treated as a non-tax lease or as if it were a purchase or a loan. In other words, the church receives the same tax benefits as owners of the equipment,...
by The TaxResearchPro Team | Jun 30, 2015 | Accounting
Can you provide some additional context as your response will factor whether or not fair value or cost can be applied? Also, is this for tax purposes or only for financial statement purposes? Lastly, what type of entities are involved for both your private client investor and the private company that provides dividends? Are these C Corporations (1120 filers)?
