What amount of profit on sale should be recognized

Assignment Help Financial Accounting

Reference no: EM132779270

Question -

A. At the beginning of the current year, MJ Company sold a building with remaining useful life of 30 years and immediately leased it back for 5 years. Sale price at below fair value was P18,000,000. Fair value of the building is 20,000,000. Carrying amount of the building is P24,000,000 with annual rental payable at the end of each year at P1,000,000. Implicit rate is 12% and PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60.

How much is the initial lease liability?

Using MJ data, how much is the cost of right of use asset?

Based on MJ data, how much is the loss on right transferred?

Based on MJ information, what is the interest expense of the seller-lessee for the current year?

B. On December 31, 2020, Grains Company sold a truck to Bryan Company and simultaneously leased it back for one year. The entity provided the following information: Sales price is P360,000. Carrying amount is P330,000. PV of reasonable lease rentals at 30,000 for 12 months @ 12% is P341,000. Estimated remaining useful life of the asset is 12 years.

In the income statement for 2020, what amount should be reported as gain from the sale of the truck?

C. On December 31, 2020, Colorado Company sold a machinery to Chicago Company and simultaneously leased it back for 3 years. The leaseback is appropriately considered a low value lease. Sale price is P450,000, carrying amount is P360,000 and estimated remaining useful life is 5 years. What amount should be reported as gain from sale of the machinery for 2020?

D. Alcatel Company leased an asset to another company. The cost of the asset was P7,994,000. Terms of the lease specify 4 year life for the lease, an annual interest rate of 15%, and 4-year-end rental payments. The lease qualified as a direct financing lease. The lease provided for a transfer of title to the lessee at the end of the lease term. After the 4th year, the residual value was estimated at P1,000,000. The PV of 1 at 15% for 4 periods is 0.572, and the PV of an ordinary annuity of 1 at 15% for 4 periods is 2.855. How much is the annual rental?

E. On July 1, 2020, Yum Company leased equipment to Burger Company for an 8-year period. Equal payments under the lease are P600,000 and are due on July 1 each year. The first payment was made on July 1, 2020. The interest rate contemplated by Yum and Burger is 10%. The cash selling price of the equipment is P3,520,000 and the cost of the equipment on Yum Company's accounting records is P2,800,000. The lease is appropriately recorded as a sales type lease. What amount of profit on sale should be recognized for the year-ended December 31, 2020?

Using Yum Company's data, what amount of interest revenue should be recorded for the year ended December 31, 2020?

Reference no: EM132779270

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