Reference no: EM132915272

Question - Orange Limited owned a plant with carrying amount of $7,500,000 on 1 March 2018. On this date, Orange Limited sold the property to a bank for $9,000,000, being the fair value of the asset, then undertook to lease it back under a 20 year lease. Annual lease payment was $450,000 in arrears and the present value of future lease payment of the 7% interest rate implicit in the lease equaled $4,767,300 at 1 March 2018. Assume that the transfer qualifies as a sale, what is the journal entry to incurred the transaction by Orange Limited at 1 March 2018?

A. Debit Right of use asset $4,767,300; Debit Bank $9,000,000; Credit Plant $7,500,000; Credit Lease Liability $4,767,300 and Credit Gain on disposal $9,000,000

B. Debit Right of use asset $4,767,300 and Credit Lease Liability $4,767,300

C. None

D. Debit Right of use asset$9,000,000; Debit Bank $9,000,000; Credit Plant $7,500,000; Credit Lease Liability $4,767,300 and Credit Gain on disposal $5,732,700

E. Debit Right of use asset $3,972,750; Debit Bank $9,000,000; Credit Plant $7,500,000; Credit Lease Liability $4,767,300 and Credit Gain on disposal $705,450