Reference no: EM132893246
Question - On 1 January 20X2, Supergrocery Inc. sold its major distribution facility, with a 22-year remaining life, to a real estate investment trust (REIT) for $9,496,000 cash, its estimated fair value. The facility had an original cost of $10,446,000 and accumulated depreciation of $3,133,800 on the date of sale.
Also on 1 January 20X2, Supergrocery signed a 20-year lease agreement with the REIT, leasing the property back. Annual payments, beginning on 31 December 20X2, are $772,800. Supergrocery has an incremental borrowing rate of 6%. The company uses straight-line depreciation and has a 31 December year-end. Supergrocery records a part-year's depreciation on buildings, based on the date of acquisition. There is an expected residual value at the end of the lease term of $84,000 but this amount is not guaranteed.
Required -
1. Give the 20X2 entries that Supergrocery would make to record the sale and the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
-Record the lease for the major distribution facility under a sale-leaseback.
-Record the interest expense for the period ending December 31, 20X2.
-Record the depreciation expense on leased distribution facility for the period ending December 31, 20X2.
2. Repeat requirement 1 assuming that Supergrocery has the option to repurchase the equipment ten years after the start of the lease for $7,996,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
-Record the gain or loss on sale and lease back.
-Record the commencement of lease.
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