1. If the sale and leaseback transaction results in an operating lease and the sale price is below fair value that is compensated by future rental at below market value, any indicated loss on sale is
a. Recognized immediately in profit or loss.
b. Recognized in other comprehensive Income.
c. Deferred and amortized in proportion to the lease payments over the period for which the asset is expected to be used.
d. Not recognized
2. If the sale and leaseback transaction results in an operating lease and the sale price is above fair value, the excess of the sale price over fair value is
a. Deferred and amortized over the period for which the asset is expected to be used.
b. Recognized immediately in profit or loss.
c. Recognized in other comprehensive income.
d. Not recognized.
3. For sale and leaseback transaction resulting in an operating lease, if the fair value of the asset at the time of sale and leaseback is below the carrying amount of the asset, the difference is recognized
a. As loss immediately b. As gain immediately
c. As deferred loss to be amortized over the lease term d. As deferred gain to be amortized over the lease term
4. If the sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount of the asset is
a. Deferred and amortized as income over the lease term b. Deferred and amortized as income over the life of the asset.
c. Recognized in profit or loss immediately d. Recognized in other comprehensive income
5. Which of the following statement is true regarding sale and leaseback transaction?
a. Both profit and loss on sale followed by an operating lease are
recognized immediately if the transaction is established at fair value.
b. Profit from the sale should be amortized in proportion to the rental payments if an operating lease results from the sale and leaseback transaction.
c. Any profit on sale and leaseback transaction resulting in an operating lease deferred and loss is recognized immediately.
d. Profit from the sale should be deferred and amortized in proportion to the amortization of the leased asset if the sale and leaseback
transaction results in a finance lease.
.
Problems 14-2 (ACP)
On January 1, 2015, German Company sold an equipment to Sterling Company for P 1,100,000 which is the fair value of the equipment.
The equipment had a cost P 2,500,000, carrying amount of P 1,000,000 and remaining useful life of 10 years.
On the same day, German Company leased back equipment for 5 years for an annual rental of P 40,000 payable at the beginning of each year.
German Company has no option to renew or repurchase the equipment.
Required:
Prepare Journal entries for 2015 to record the sale and leaseback transaction in the books of German Company and Sterling Company.
Problem 14-3 (ACP)
On January 1, 2015, Canada Company sold a machine with a remaining useful life of 10 years to Saigon Company and simultaneously leased it back for 3 years. Pertinent data are as follows;
Sale price 500,000 Machinery 1,000,000 Accumulated Depreciation 450,000 Annual rental 90,000
Required:
Prepare journal entry to record the sale and leaseback transaction on the books of Canada Company and Saigon Company.
Problem 14-4 (IFRS)
On January 1, 2015, Juan Company sold a machine and immediately leased it back at an annual rental that was determine to be sufficiency lower than market rent.
The details of the sale and leaseback are as follows:
Sale price 5,000,000 Fair value machine 6,500,000 Carrying amount of machine 7,000,000 Annual rental 80,000 Remaining life of machine 15 years Lease term 5 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback on the books of Juan Company
Problem 14-5 (IFRS)
On January 1, 2015, Pedro Company sold a machine and immediately leased it back at an annual rental that was determine to be sufficiency lower than market rent.
The following date relate to the sale and leased back transaction;
Sale price 4,000,000 Fair value of machine 5,300,000 Carrying amount of machine 5,000,000 Annual rental 50,000 Remaining life of machine 10 years Lease term 2 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback transaction on the books of Pedro Company.
Problem 14-6 (IFRS)
On January 1, 2015, Hazel Company sold a machine and immediately lease it back. The following data pertain to the sale and leaseback transaction.
Sale price 4,600,000 Fair value of machine 4,300,000 Carrying amount of machine 3,500,000 Annual rental 90,000 Remaining life of machine 12 years Lease term 3 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback transaction on the books of Hazel Company.
Problem 14-7 (IFRS)
On January 1, 2015, Racquel Company a machine and immediately lease it back. The following data pertain to the sale and leaseback transaction.
Sale price 4,500,000
Fair value of machine 4,000,000 Carrying amount of machine 4,200,000 Annual rental 80,000 Remaining life of machine 10 years Lease term 2 years
Required:
Prepare journal entries for 2015 to record the sale and leaseback transaction on the books of seller-lease.
Problem 14-8 (AICPA Adapted)
On December 31, 2015, Bain Company sold a machine to a Ryan Company and simultaneously leased it back for one year. The entity provided the following information at this date:
Sale Price 360,000
Carrying Amount 330,000
Present Value of reasonable leased rental
(P30,000 for 12 months @ 12%) 341,000
Estimated remaining useful life 12 years
In the Income statement for 2015, what amount should be reported as gain from the sale of the machine?
a. 32,100 b. 30,000 c. 4,100 d. 0
Problem 14-9 (IFRS)
On January 1, 2015, Tripoli Company sold a machine for P3, 000,000. The fair value on the date of sale was P3, 500,000. The a=machine had carrying amount of P3, 800,000 and remaining life of 10 years. The entity immediately leased back the machine at an annual rental of P50, 000 for four years. It was determined that the annual rental is sufficiently lower compared to the market rent of a similar asset. What total amount should be recognized in profit or loss for 2015?
a. 425, 000 b. 475, 000 c.200, 000 d.250, 000
Problem 14-10 (IFRS)
On December 31, 2015, Zeta Company sold an equipment with an estimated remaining useful life of 10 years for P7, 500,000. At the same time, Zeta Company leased back the equipment for 2 years. The lease back in an operating lease. On the date of sale, the fair value of the equipment is P6, 000,000 and the carrying amount is P5, 000,000. What amount should be reported as gain from sale and lease back for 2015?
a. 2, 500,000 b. 1, 500,000 c. 1, 000,000 d. 1, 750,000
Problem 14-11 (IFRS)
On December 31, 2015, Thunder Company sold a land with a cost of P1, 500,000 to Victoria Company for P2, 300,000 when the fair value of the land was P2, 150,000. The Thunder Company immediately entered into a cancelable lease agreement to use the land for two years at an annual rental of P200, 000. What amount of gain should be recorded on the sale of land for 2015?
a. 150, 000 b. 800, 000 c. 650, 000 d. 725, 000
Problem 14-12 (IAA)
On June 30, 2015, Pam Company sold equipment for P3, 500,000. The equipment had a carrying amount of P3, 150,000 and a remaining useful life of 10 years. The same day, the entity leased back the entity at P35, 000 per month for 5 years with no option to renew the lease or purchase the equipment. what amount should be reported as rent expense for 2015?
a. 420, 000 b. 210, 000 c.175, 000
d. 140, 000
Problem 14-13 (AICPA Adapted)
On June 30, 2015, Lee Company sold equipment to an unaffiliated entity for P5, 500,000. The equipment had a carrying amount of P5, 000,000 and a remaining life for 10 years. That same day, Lee Company leased back at P15, 000per month for 2 years with no option renew the lease or to repurchase the equipment. The present value of the lease payments using the appropriate interest rate was P318, 650 on June 30, 2015.
What amount should be reported a rent expense for the year ended December 31, 2014?
a. 110, 000 b. 90, 000 c. 50, 000 d. 40, 000
Problem 14-14 (AICPA Adapted)
On December 31, 2015, Lane Company sold equipment to Noll Company and simultaneously leased it back for 12 years. Pertinent information on this date is as follows:
Sale price 480, 000
Carrying amount 360, 000
Estimated remaining economic life 15 years
On December 31, 2015, what amount should be reported as gain from sale of equipment?
a. 120,000 b. 112,000 c. 110,000 d. 0
Problem 14-17 (PHILCPA Adapted)
on December 31, 2015, Albocasser Company purchased a tractor from Cheliff company. Simultaneous with the sale. Cheliff leased back the tractor for 12 years for use in the farm that it is developing. The sale price of the tractor was P7, 800, 000, while the carrying amount in the books of Cheliff on the date of the sale was P5, 850,000. Cheliff’s engineer has estimated that the remaining economic life of the tractor is 15 year. Cheliff is a wholly-owned subsidiary of s USA Company.
What is the amount that Cheliff Company should report as deferred gain from the sale of the tractor on December 31, 2015 in the reporting package for use in consolidation with the head office account?
a. 1, 950,000 b. 1, 820,000 c. 1, 737, 500 d. 0
Problem 14-18(IFRS)
In an attempt to alleviate liquidity problems, Banco Company entered into an agreement on January 1, 2015 to sell a processing plant to another entity for P 3,500,000 which is the fair value of the plant. At the date of sale, the plant had a carrying amount of P 2,750,000. Banco Company immediately leased the processing plant back from the buyer. The terms of the lease agreement were:
Annual payment in arrears, commencing
December 31, 2015 700,000 Reimbursement to the lessor for maintenance
Cost (included in the annual payment) 35,000 Lease term 6 years Economic life of plant 8 years Implicit interest rate 10%
What amount should be reported as deferred gain on sale and leasedback on December 31, 2015?
a. 750,000 b. 625,000 c. 656,000 d. 0
Problem 14-19(IAA)
On January 1, 2015, Accord Company sold a building with a carrying amount of P 4,200,000 to another entity for P4,050,000. Accord Company
immediately entered into a leasing agreement where in Accord Company would lease the building back for annual payment of P 640,000. The term of the lease is 10 years, the expected remaining useful life of the building. The first annual lease payment is to be made immediately, and future payments will be made on January 1 of each succeeding year. The lessor’s implicit interest rate is 12%. What amount of loss on sale and leaseback should be recognized by Accord Company for 2015?
a. 150,00 b. 135,00 c. 15,000 d. 0
Problem 14-20(IFRS)
Sensible Company sold a machinery on January 1, 2015 at the fair value of P 2,500,000 when the carrying amount was P 2,000,000. Sensible company leased the asset back on that date for the remaining useful life of 5 years.
Lease payments are P 700,000 on January 1 each year.
What amount of gain on disposal should be recognized in the 2015 income statement?
a. 500,000 b. 100,000 c. 250,000 d. 0
What is the total finance charge over the lease term?
a. 1,500,000 b. 1,000,000 c. 500,000 d. 0
Problem 14-21(IAA)
On January 1, 2015, Baker Company sold equipment it had recently purchased to an unaffiliated entity for its fair value of P 5,700,000. The
equipment had a carrying amount of P 4,500,000 and a remaining life of five years. On that same day, Baker Company leased back the equipment at P 1,350,000 per year payable in advance for a 5-year period. The lessor’s implicit interest rate in the lease is 10%. Baker Company used the double declining balance method of depreciation. What amount should be reported as unearned income on the sale and leaseback on December 31, 2015?
a. 1,200,000 b. 960,000 c. 720,000 d. 0
Problem 14-22(IAA)
On January 1, 2015, Halo Company sold a computer system to Lark Company for P 2,550,000 and immediately leased the computer system back. The computer was carried on Halo’s books at a value of P 2,250,000. The term of the noncancelable lease is 10 years and title will transfer to Halo at the end of the lease term. The lease agreement required equal rental payments of P 415,000 at the end of each year. The incremental borrowing rate for halo is 12% but Halo is aware that Lark set the annual rental to ensure a rate of return of 10%, the computer has a fair value of P 2,550,000 on January 1, 2015 and an estimated economic life of 12 years. Halo paid executor cost of P 45,000 for the current year. Which of the following would be recorded by Halo on December 31, 2015?
A. Debit leased computer P 2,550,000 B. Credit deferred gain P 300,000 C. Debit deferred gain P 25,000 D. Debit deferred gain P 30,000