asing Ltd. (CPL) owns the building it uses; it had an original cost of $8,096,000 and accumulated depreciation of $2,428,800 as of 1 January 20X2. On this date, the building (but not the land) was sold to a real estate Investment trust (REIT) for $7,596,000, which also was the building's fair value, and simultaneously leased back to CPL. The lease has a 15-year term and required payments on 31 December of each year. The payments are $646,000 with no transfer of title or purchase option. CPL will pay all of the building's operating and maintenance costs including property taxes and Insurance. CPL's Incremental borrowing rate is 9%. The building is being depreciated straight-line with a full year's depreciation in the year of acquisition. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare entries for CPL to record the sale and leaseback of the building. (If no entry is required for a transaction/event, select "No Journal entry required" In the first account fleld. Do not round Intermediate calculations.)

asing Ltd. (CPL) owns the building it uses; it had an original cost of $8,096,000 and accumulated depreciation of $2,428,800 as of 1 January 20X2. On this date, the building (but not the land) was sold to a real estate Investment trust (REIT) for $7,596,000, which also was the building's fair value, and simultaneously leased back to CPL. The lease has a 15-year term and required payments on 31 December of each year. The payments are $646,000 with no transfer of title or purchase option. CPL will pay all of the building's operating and maintenance costs including property taxes and Insurance. CPL's Incremental borrowing rate is 9%. The building is being depreciated straight-line with a full year's depreciation in the year of acquisition. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare entries for CPL to record the sale and leaseback of the building. (If no entry is required for a transaction/event, select "No Journal entry required" In the first account fleld. Do not round Intermediate calculations.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Central Purchasing Ltd. (CPL) owns the building it uses; it had an original cost of $8,096,000 and accumulated depreciation of
$2,428,800 as of 1 January 20X2. On this date, the building (but not the land) was sold to a real estate Investment trust (REIT) for
$7,596,000, which also was the building's fair value, and simultaneously leased back to CPL.
The lease has a 15-year term and required payments on 31 December of each year. The payments are $646,000 with no transfer of
title or purchase option. CPL will pay all of the building's operating and maintenance costs including property taxes and insurance.
CPL's Incremental borrowing rate is 9%. The building is being depreciated straight-line with a full year's depreciation in the year of
acquisition.
(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)
Required:
1. Prepare entries for CPL to record the sale and leaseback of the building. (If no entry is required for a transaction/event, select "No
Journal entry required" In the first account fleld. Do not round Intermediate calculations.)
View transaction list
Journal entry worksheet
1
Record the lease for the building under a sale and leaseback.
Note: Enter debits before credits.
Transaction
1
Cash
General Journal
Accumulated depreciation, building
Debit
7,596,000
2,428,800
Credit
2

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