For situation 1: Determine the amount of unearned profit to be reported by Ivanhoe from the equipment sale on December 31, 2023. Unearned profit +A $
For situation 1: Determine the amount of unearned profit to be reported by Ivanhoe from the equipment sale on December 31, 2023. Unearned profit +A $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Presented below are three independent situations. All the companies involved use ASPE, unless otherwise noted.
1.
2.
3.
On December 31, 2023, Ivanhoe Inc. sold equipment to Oriole Corp. and immediately leased it back for 10 years. The
equipment's selling price was $526,000, its carrying amount was $406,000, and its estimated remaining economic life was 12
years.
On December 31, 2023, Pharoah Corp. sold a machine to Sheridan Ltd. and simultaneously leased it back for one year. The
machine's selling price was $483,000, its carrying amount was $421,700, and it had an estimated remaining useful life of 14
years. The rental payments' PV for one year is $34,800.
On January 1, 2023, Carla Corp. sold equipment with an estimated useful life of five years. At the same time, Carla leased
back the equipment for two years under a lease classified as an operating lease. The equipment's selling price (fair value) was
$213,200, the carrying amount was $306,700, the monthly rental under the lease was $6,500, and the rental payments' PV
was $115,453.
(a)
For situation 1: Determine the amount of unearned profit to be reported by Ivanhoe from the equipment sale on December 31,
2023.
Unearned profit
$
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