Examine prior to recognizing any gain on the transaction

Reference no: EM133360317

Question: On January 15, 2020, Care, Inc., which has a March 31 year-end, entered into a transaction to sell the land and building that contained its manufacturing operations for a total selling price for $19.75 million. The book value of the land and the building was $3.42 million. The final closing was not expected to occur until sometime between July 2021 and March 2022.

On March 15, 2020, Care received and irrevocable letter of credit, issued by a major bank, for $5 million, which represented more than 25% of the sales price. Care would collect the $5 million and would keep the money even if the buyer decided not to complete the transaction. The letter of credit had an option for an extension for up to one year, for a total period of two years. At closing, the entire selling price was to be paid in cash.

Care was going to continue its manufacturing operations in the building and would continue to be responsible for all normal occupancy costs until final closing, when it would move to another location. After the sale, the building would be torn down and replaced by a large office building complex.

As the auditor, what additional types of evidence would you examine prior to recognizing any gain on the transaction?

Reference no: EM133360317

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