Reference no: EM132891565

Question - Central Purchasing Ltd. (CPL) owns the building it uses; it had an original cost of $8,336,000 and accumulated depreciation of $2,500,800 as of 1 January 20X2. On this date, the building (but not the land) was sold to a real estate investment trust (REIT) for $7,836,000, which also was the building's fair value, and simultaneously leased back to CPL.

The lease has a 15-year term and required payments on 31 December of each year. The payments are $686,000 with no transfer of title or purchase option. CPL will pay all of the building's operating and maintenance costs including property taxes and insurance. CPL's incremental borrowing rate is 8%. The building is being depreciated straight-line with a full year's depreciation in the year of acquisition.

Required -

1. Prepare entries for CPL to record the sale and leaseback of the building.

2. Prepare year-end adjusting entries for 20X2.

3-a. Show how all amounts related to the sale and leaseback will be presented on the statement of financial position in 20X2.

3-b. Show how all amounts related to the sale and leaseback will be presented on the statement of comprehensive income in 20X2.