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    Sale and Leaseback Problem Solving MC

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    Teresa Revilala
    Chorvalu Oil Company sold equipment for $1,500,000 that had a carrying amount of $1,000,000 and remaining useful life of 20 years, and leased it back for 10 years with annual lease payments of $244,120. The question asks for the amount of unearned gain on equipment sale that should be reported on the statement of financial position.

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    Sale and Leaseback Problem Solving MC

    Uploaded by

    Teresa Revilala
    562 views4 pages
    Chorvalu Oil Company sold equipment for $1,500,000 that had a carrying amount of $1,000,000 and remaining useful life of 20 years, and leased it back for 10 years with annual lease payments of $244,120. The question asks for the amount of unearned gain on equipment sale that should be reported on the statement of financial position.

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    Chorvalu Oil Company sold equipment for $1,500,000 that had a carrying amount of $1,000,000 and remaining useful life of 20 years, and leased it back for 10 years with annual lease payments of $244,120. The question asks for the amount of unearned gain on equipment sale that should be reported on the statement of financial position.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    562 views4 pages

    Sale and Leaseback Problem Solving MC

    Uploaded by

    Teresa Revilala
    Chorvalu Oil Company sold equipment for $1,500,000 that had a carrying amount of $1,000,000 and remaining useful life of 20 years, and leased it back for 10 years with annual lease payments of $244,120. The question asks for the amount of unearned gain on equipment sale that should be reported on the statement of financial position.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Problem 1 On January 1, 2012, Chorvalu Oil Company sold equipment with a carrying amount of P 1,000,000 and a remaining useful

    life of 20 years to Maling Akala Drilling for P1, 500,000.Chorvalu immediately leased the equipment back under a 10 year finance lease with a present value of P1, 500,000 and will depreciate the equipment using the straight line method. Chorvalu made the first annual lease payment of P244, 120 on December 31, 2012 statement of financial position, what amount should be reported as unearned gain on equipment sale? a. 500,000 b. 450,000 c. 255,880 d. 0 Problem 2 On January 1, 2011, Haching Company sold equipment it had recently purchased to an unaffiliated entity for P5, 700,000. The equipment had a carrying amount on Hachings books of P4, 500,000 and a remaining life of 5 years. On that same day, Haching leased back the equipment at P1, 350, 000 per year payable in advance for a 5 -year period. The lessors implicit rate in the lease is 10%. Haching Company used the double declining balance method of depreciation. What is the unearned income on sale and leaseback on December 31, 2011? a. 1, 200, 000 b. 960, 000 c. 720, 000 d. 0 Problem 3 Aling Purita Group of Companies sold an item of plant anf machinery on January 1, 2011 for P 2,500,000, its fair value, when its carrying amount was P2, 000, 000. Aling Purita Group of Companies leased the item back on that date for 5 years, the items remaining useful life. Lease payments are P700, 000 on January 1each year. What is the total finance charge over the lease term? a. 1, 500, 000 b. 1, 000, 000 c. 250, 000 d. 0

    Problem 4 On January 1, 2011, Shemay Company sold a building with a carrying amount of P4, 200, 000 to another entity for P4, 050, 000. Shemay Company immediately entered into a leasing agreement wherein Shemay would lease the building back for an annual payment of P640, 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 lessors implicit rate is 12%. What amount of loss on sale and leaseback should be recognized for 2011? a. 150, 000 b. 135, 000 c. 15, 000 d. 0 Problem 5 On Deccember 31, 2011, Ganda ko Company sold a machine with 12-year useful life to Panget Mo Kaya Company and simultaneously leased it back for a year.

    Sales price Carrying amount PV of reasonable lease rentals (3, 000 for 12 mos @ 12%)

    360, 000 330, 000

    34, 100

    What deferred revenue from the sale should be reported in 2011? a. 34, 100 b. 30, 000 c. 4, 100 d. 0

    Problem 6 On December 31, 2011, Joketime Company sold an equipment with useful life of 10 years and simultaneously leased back the equipment for 2 years.

    Sales price Carrying amount Fair value of equipment on date of sale What amount of gain should be reported in 2011? a. 2, 500, 000 b. 1, 500, 000 c. 1, 000, 000 d. 1, 750, 000 Problem 7

    7, 500, 000 5, 000, 000 6, 000, 000

    In an attempt to alleviate its liquidity problems, Tampururut Company entered into an agreement on January 1, 2013 to sell its 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 P2,750,000. Tampururut Company immediately leased the processing plant back from the buyer. The terms of the lease agreement were:

    Annual payment in arrears, commencing December 31, 2013 Reimbursement to the lessor for maintenance cost (included in annual payment) Lease term Economic life of plant Implicit interest rate

    700,000

    35,000 6 years 8 years 10%

    What amount should be reported as deferred gain on sale and leaseback on December 31, 2013? a. 750,000 b. 625,000 c. 656,250 d. 0 Problem 8 On December 31, 2013, Cha-ching Cha-ching Company purchased a tractor from Bling-Bling Company. Simultaneous with the sale, Bling-Bling Company leased back the tractor for 12 years for its use in the new farm it was developing. The sale price of the tractor was P 7,800,000, while its carrying value in the

    books of Bling-Bling Company as of the date of sale was P 5,850,000. Bling-Blings engineers have estimated that the remaining economic life of the tractor is 15 years.

    What is the amount that Bling-Bling Company should report as gain immediately from the sale of the tractor on December 31, 2013 in its 2013 income statement? a. 1,950,000 b. 1,820,000 c. 1,787,000 d. 0 Problem 9 On June 30, 2013, Bushing Bushing Company sold an equipment to an unaffiliated entity for P 5,500,000. The equipment had a carrying amount of P 5,000,000 and a remaining life of 10 years. That same day, Bushing Bushing leased back the equipment at P 15,000 per month for 2 years with no option to renew the lease or repurchase the equipment. The present value of the lease payments using the appropriate rate of interest was P 318, 650 on June 30, 2013. What is the equipment rent expense for the year ended December 31, 2013? a. 110, 000 b. 90,000 c. 50,000 d. 40,000 Problem 10 On January 1, 20113, Tungaw Company sold a machine to another entity for P 3,000,000. The fair value on the date of sale was P 3,500,000. The machine had a carrying amount of P 4,000,000 and remaining life of 10 years. The entity immediately leased back the machine at an annual rental of P 60,000 for four years. It was determined that the annual rental is sufficiently lower compared to the market rent of a similar asset. What is the total amount to be recognized by the entity in profit or loss for 2013? a. 1,060,000 b. 310,000 c. 185,000 d. 60,000

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