Question

On January 1,2020, Blue Sky Corporation sold an equipment with the remaining useful life of 30 years and immediately leased it back for 5 years.

Sales price below fair value, 18,000,000; Fair value, 20,000,000; Carrying amount, 24,000,000; Annual rental payable every December 31, 1,000,000; Implicit interest rate, 12%; Present value of an ordinary annuity of 1 at 12% for 5 periods, 3.60

The initial lease liability is _____.
The cost of right of use asset is _____.
The loss on right transferred is _____.
The interest expense of the seller-lessee for 2020 is _____.
The net annual rent income of the buyer-lessor is _____.

Answer 1

a)	Computation of initial leas liability	3600000
b)	Cost of right of use of asset	5600000
c)	Loss on right transferred	4000000
d)	Interest expense of lessee	432000
e)	Net annual rent income of buyer	1000000

Formulas:

a)	Computation of initial leas liability	=1000000*3.6
b)	Cost of right of use of asset	=C2+2000000
c)	Loss on right transferred	=24000000-20000000
d)	Interest expense of lessee	=C2*12%
e)	Net annual rent income of buyer	1000000