Question

XYZ Company entered into a sale-leaseback transaction with ABC Bank on January 1, 2017. On that...

XYZ Company entered into a sale-leaseback transaction with ABC Bank on January 1, 2017. On that date, XYZ Company sold ABC Bank its office building for $800,000 cash and immediately leased the building back. The operating lease is for the final 12 years of the building's estimated 50-year useful life. The building had a fair value of $800,000 and a book value of $650,000 on January 1, 2017. The original cost of the building was $1,000,000. The rental payments of $100,000 are due to ABC Bank each December 31. The lease has an implicit interest rate of 9%.

Determine the amount of gain on the sale XYZ Company should recognize on the transaction.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

As per the accounting standards, sale and lease back transaction has to be considered as two transactions for the accounting purpose. i.e.,1) Sale Transaction 2) Lease transaction.

Hence, the following procedure can be followed for recognition of the gain on sale.

The gain on saleof asset when sale value=fair value, can be recognised immediately in profit and loss a/c.

The gain on sale of asset will be the difference between sale value and the carrying amount.

From the given facts, Sale value= Fair Value= $8,00,000

Carrying value=$6,50,000

Hence, Gain on sale= $8,00,000-$6,50,000

= $1,50,000.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
At the beginning of current year, ABC sold a building and immediately lease it back. The...
At the beginning of current year, ABC sold a building and immediately lease it back. The following data pertain to the sale and leaseback transaction: Sale price at above fair value                                                        9,000,000 Fair value of building                                                                     8,000,000 Carrying amount of building                                                         7,200,000 Annual rental payable at the end of each year                              600,000 Remaining life of building                                                             20 years Lease term                                                                                   4 years Implicit interest rate                                                                    12% PV of an ordinary annuity of 1 at 12% for 4 periods                      3.037 REQUIRED:...
On January 1, 2017, Beard Company purchased a machine for $800,000. The machine is expected to...
On January 1, 2017, Beard Company purchased a machine for $800,000. The machine is expected to have a 10-year life and no residual value. On January 1, 2017, it leased the machine to Ajax Company for a three-year period at an annual rental of $200,000 to be paid at the end of each year. The lease has an implicit interest rate of 8%. Ajax has adopted early the provisions of ASC 842 on January 1, 2017 1-What's the initial value...
Pronghorn Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that...
Pronghorn Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost $100,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,200 payable each January 1, beginning January 1, 2017. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Pronghorn’s January 1, 2017, journal...
Sorocaba Ltda. sold a building to Banco Janeiro on January 1, 2017, for 212,000 reais and...
Sorocaba Ltda. sold a building to Banco Janeiro on January 1, 2017, for 212,000 reais and then leased it back under a 10-year lease agreement, which is accounted for as an operating lease. The building had a carrying amount of 158,600 reais and a fair value of 212,000 reais on the date of sale. Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare...
Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2017. The lease agreement called for...
Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,141 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 8 years, a fair value of $9,400, a book value of $7,400, and Blue expects a residual value of $6,900 at the end of the lease term. Blue set the lease payments with the intent of earning a 7% return, though...
On January 1, 2017, Beard Company purchased a machine for $620,000. The machine is ­expected to...
On January 1, 2017, Beard Company purchased a machine for $620,000. The machine is ­expected to have a 10-year life, no residual value, and will be depreciated by the straight-line method. On January 1, 2017, it leased the machine to Child Company for a three-year period at an annual rental of $128,000 to be paid at the end of each year. Beard could have sold the machine for $817,298 instead of leasing it. Child does not know the implicit rate...
Pina Corporation leases equipment from Falls Company on January 1, 2017. The lease agreement does not...
Pina Corporation leases equipment from Falls Company on January 1, 2017. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. Prepare Pina’s journal entries on January 1, 2017, and December 31, 2017. Assume the annual lease payment is $37,000 at the...
Presented below are four independent situations. (Round answers to 0 decimal places, e.g. 125. If answer...
Presented below are four independent situations. (Round answers to 0 decimal places, e.g. 125. If answer is 0, please enter 0. Do not leave any fields blank.) (a) On December 31, 2017, Ivanhoe Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $517,600, its carrying amount is $400,000, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from...
On January 1, 2017, Irwin Animation sold a truck to Peete Finance for $35,000 and immediately...
On January 1, 2017, Irwin Animation sold a truck to Peete Finance for $35,000 and immediately leased it back. The truck was carried on Irwin’s books at $28,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Irwin at lease-end. The lease requires three equal rental payments of $8,696 at the end of each year (first payment on January 1, 2018). The appropriate rate of interest is 6%, the...
On January 1, 2017, Marin Co. leased a building to Cullumber Inc. The relevant information related...
On January 1, 2017, Marin Co. leased a building to Cullumber Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $2,700,000 (unguaranteed). 2. The leased building has a cost of $3,200,000 and was purchased for cash on January 1, 2017. 3. The building is depreciated on a straight-line basis. Its estimated economic life is...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT