On January 1, 2020 ABC Company sold a machinery to XYZ Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next four years, ABC simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under PFRS 15. Information relating to this transaction follows: Fair value of the machinery Carrying amount of machinery Remaining useful life of machinery Lease term Annual rent payable at the end of each year Market rate of interest Present value of 1 at 10% for four periods Present value of an ordinary annuity of 1 for four periods 2,200,000 1,700,000 8 years 5 years 500,000 10% 0.6830 3.1699 Required: Gain on sale and leaseback

On January 1, 2020 ABC Company sold a machinery to XYZ Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next four years, ABC simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under PFRS 15. Information relating to this transaction follows: Fair value of the machinery Carrying amount of machinery Remaining useful life of machinery Lease term Annual rent payable at the end of each year Market rate of interest Present value of 1 at 10% for four periods Present value of an ordinary annuity of 1 for four periods 2,200,000 1,700,000 8 years 5 years 500,000 10% 0.6830 3.1699 Required: Gain on sale and leaseback

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: 1. Prepare the appropriate entries for both Karrier and Ghosh on January 1, 2024, to record the…

A: A lease is a contractual agreement between two parties where the owner of the assets known as the…

Q: On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year…

A: Lease is an agreement or association between two parties in which one party provides its asset for…

Q: Sheridan Co. leased machinery from Young, Inc. on January 1, 2025. The lease term was for 8 years,…

A: Step 1: Step 2: Step 3: Step 4:

Q: REQUIRED: 1. Identify the type of lease involved for Lakeshore Gelato and Gelato Equipment Company…

A: The lease is classified as a finance lease for both Lakeshore Gelato (lessee) and Gelato Equipment…

Q: Haresh

A: The objective of the question is to prepare the appropriate accounting entries for both Karrier and…

Q: On January 1, 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a…

A: Lease: A lease is an agreement between two parties that specifies the conditions under which one…

Q: Using (1) factor tables, (2) a financial calculator, or (3) Excel functions, calculate the amount…

A: Amount1. Using factor tables:Right-of-use asset: $245,086.00Lease liability: $245,086.002. Using a…

Q: On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period…

A: Lease is defined as a contractual agreement incorporated between two business entities where one…

Q: On January 1, 2021, Moorecraft Finance Company agreed to lease a piece of machinery to Ward…

A: Sure, let's break down the process of determining the implicit rate in the lease agreement between…

Q: In 2020, Gain Inc. purchased all of the assets of Cookie’s business. As part of this purchase, Gain…

A: Step 1 Amortization typically refers to the process of writing down the value of an intangible asset…

Q: On January 1, 2020, Morris Company sells land to Lopez Corporation for $10,000,000, and immediately…

A: The following transactions are journalized in the books of Morris Company to show the treatment of…

Q: 16. In 2018, Port Company purchased the working interest of an unproved lease for $100,000. In 2019,…

A: The journal entry is very important for the accounting process because the business transaction is…

Q: On 1 July 2023, Station Ltd leased machinery to Depot Ltd. The machinery was purchased by Station…

A: A lease payment is a periodic payment made by a lessee (tenant) to a lessor (landlord) for the use…

Q: On 30 June 2020, Cambridge Ltd leased a vehicle to Awamutu Ltd. Cambridge Ltd had purchased the…

A: What is meant by Lease? It is an agreement between two parties in which one party agrees to…

Question

On January 1, 2020 ABC Company sold a machinery to XYZ Company for P1,900,000. Because of
the entity's commitments to its customers to provide their needs for the next four years, ABC
simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be
accounted for as a sale under PFRS 15. Information relating to this transaction follows:
Fair value of the machinery
Carrying amount of machinery
Remaining useful life of machinery
Lease term
2,200,000
1,700,000
8 years
5 years
500,000
10%
Annual rent payable at the end of each year
Market rate of interest
Present value of 1 at 10% for four periods
Present value of an ordinary annuity of 1 for four periods
0.6830
3.1699
Required: Gain on sale and leaseback

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Introduction:

VIEW

Step 2 Computation:

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $114,321. (FV of $1, PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Information: Lease term Quarterly rental payments. Economic life of asset Fair value of asset Implicit interest rate (Also lessee's incremental borrowing rate) Required: Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2022. Edison's fiscal year ends December 31. Complete this question by entering your answers in the tabs below. Amort Schedule Payment Date 01/01/2021 01/01/2021 04/01/2021 07/01/2021 10/01/2021 01/01/2022 04/01/2022 07/01/2022 10/01/2022 General Journal Prepare a lease amortization schedule for Edison Leasing from the beginning of the lease through January 1, 2022. Edison's fiscal…
On January 1, 2021, Moo Company sold an asset with a carrying amount of P6,000,000 to Boo Company for P8,000,000. The asset had a fair value of P7,500,000 and a remaining useful life of six years. The asset was immediately leased back to Moo Company for a term of four years and annual rentals of P1,500,000 payable every yearend. The transfer qualified for as a sale and the lease was accounted for as a finance lease with an implicit interest rate of 12%. How much is the 2021 net income/loss of Moo Company relating to the sale and leaseback transaction? [Indicate whether it is a gain or loss] How much is the 2021 net income/loss of BooCompany relating to the sale and leaseback transaction? [Indicate whether it is a gain or loss] How much is the carrying amount of Moo Company's asset as of yearend 2021? How much is the 2022 net income/loss of Moo Company relating to the sale and leaseback transaction? [Indicate whether it is a gain or loss] How much is the 2022 net income/loss of Boo…
During 2021, Cullumber Company purchased the net assets of Riverbed Corporation for $2206600. On the date of the transaction, Riverbed had $601800 of liabilities. The fair value of Riverbed's assets when acquired were as follows: Current assets $1083240 Noncurrent assets 2527560 $3610800 How should the $802400 difference between the fair value of the net assets acquired ($3009000) and the cost ($2206600) be accounted for by Cullumber? O The current assets should be recorded at $1083240 and the noncurrent assets should be recorded at $1725160. O A deferred credit of $802400 should be set up and then amortized to income over a period not to exceed forty years. O The $802400 difference should be recognized as a gain. O The $802400 difference should be credited to retained earnings.
PT Adista owns land that was purchased in cash on January 2, 2018 at a cost of IDR 1,000,000,000. Requested: a. PT Adista decided to use the revaluation model for the land (which is a fixed asset). On December 31, 2018, the company recognized a revaluation surplus of the land amounting to Rp 100,000,000. If on December 31, 2019 it is known that the fair value of the land is IDR 1,060,000,000, make a journal entry that is recorded by PT Astina regarding the land in 2019. b. Describe how the accounting treatment differs between the fixed asset revaluation model and the fair value model of investment property.
Christina Co. has a factory equipment with a carrying amount of P700,000 and has a remaining useful life of 7 years. On January 1, 2020, Christina agreed to an exchange transaction with Kat & Inc. to transfer the equipment to the latter. The transfer satisfied the requirements of PFRS 15 to be a sale and Christina immediately leased it back for a lease term equal to the remaining life of the equipment. The sales price amounted to P500,000 while annual rental payable at the end of each year is P100,000 for an implicit rate of 10%. Selling price is equal to fair value. How much loss shall Christina recognize in relation to the sale and leaseback transaction? a. 681,578.63 b. 200,000 c. 194,736.75 d. 5,263.25
On July 1, 2023, Crane Corp., which uses IFRS, signs a 4-year, non-cancellable lease agreement to lease a equipment from Blossom Ltd. The following information concerns the lease agreement. 1. The equipment's fair value on July 1, 2023 is $259,000. نه 3. The agreement requires equal rental payments of $58,000.00 beginning on July 1, 2023. The equipment has an estimated economic life of 5 years, with an unguaranteed residual value of $93,000. Crane Corp. depreciates similar equipment using the straight-line method, with no residual value. 4. The lease is non-renewable. At the termination of the lease, the equipment reverts to Blossom. 5. 6. Crane's incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Crane Corp. The yearly rental payment includes $6,543.59 of executory costs related to insurance on the equipment. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.
On January 1, 2023, Carla Vista Inc. sold a piece of equipment to Sunland Ltd. For $182,000, and immediately leased the equipment back. At the time, the equipment was carried on Carla Vista's books at a cost of $273,000, less accumulated depreciation of $109,000. The lease is a capital lease to Carla Vista, with a lease term of 5 years. The equipment under capital lease will be depreciated in Carla Vista's books over five years using double-declining balance depreciation. Calculate the amortization of the deferred gain on sale to be recorded at the end of 2023, if Carla Vista follows ASPE.
On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $779,677 and has an expected economic life of five years. Nevels expects the residual value on December 31, 2027, will be $103,000. Negotiations led to the lessee guaranteeing a $146,000 residual value. Equal payments under the lease are $203,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Nguyen is aware that Nevels used a 8% interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2024, to record the lease. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2024, related to the lease.
The following facts pertain to a non-cancelable lease agreement between Wildhorse Leasing Company and Windsor Company, a lessee. Commencement date June 1, 2025 Annual lease payment beginning with June 1, 2025 $19,998.50 Bargain purchase option price at end of lease term $7,000.00 Lease term Economic life of leased equipment (no salvage value) Lessor's cost Fair value of asset at June 1, 2025 4 years 12 years $56,000 $78,999 Lessor's implicit rate (known to lessee) 6% Lessee's incremental borrowing rate 69 The collectibility of the lease payments by Wildhorse is probable. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) (b) (c) Your answer is partially correct. Prepare a lease amortization schedule for Windsor for the 4-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.) WINDSOR COMPANY (Lessee) Date 6/1/25 $ 6/1/25 6/1/26 6/1/27 6/1/28 5/31/29 Annual Lease Payment Plus BPO $ Lease…
On January 1, 2021, Smith Company sold a piece of machinery to Gaby Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next three years, Smith Company simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this transaction follows: Fair value of machinery - P2,200,000 Carrying amount of machinery - P1, 700,000 Remaining useful life of the machinery - 8 years Lease term - 3 years Annual rent payable at the end of each year beginning, December 31, 2021- P500,000 Market rate of interest - 10% The present value of an ordinary annuity of 1 at 10% for 3 periods is 2.4869 The present value of an annuity due of 1 at 10% for 3 periods is 2.7355 1. How much is the interest expense for 2021 on the lease liability relating to the right retained in the sale-leaseback transaction? (round off your final answer to the nearest peso value)…
Cullumber Co. purchases land and constructs a service station and car wash for a total of $487500. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $560000 and immediately leased from the oil company by Cullumber. Fair value of the land at time of the sale was $56000. The lease is a 10-year, noncancelable lease. Cullumber uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Cullumber at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2021 $560000 Dec. 31, 2021 $91137.42 $56000 $35137.42 524862.58 Dec. 31, 2022 91137.42 52486.26 38651.16 486211.42 Dec. 31, 2023 91137.42 48621.14 42516.28 443695.14 What is the…
Jay