Question

Exercise 21-16 Presented below are four independent situations. (Round answers to 0 decimal places, e.g. 125. If answer is 0, please enter 0. Do not leave any fields blank.) (a) On December 31, 2017, Sandhill Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $515,200, its carrying amount is $401,900, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2017. The amount of deferred revenue to be reported $

(b) On December 31, 2017, Teal Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sales price of the machine was $477,700, the carrying amount is $420,300, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one year is $35,000. At December 31, 2017, how much should Teal report as deferred revenue from the sale of the machine? The amount of deferred revenue to be reported $

(c) On January 1, 2017, Flint Corp. sold an airplane with an estimated useful life of 10 years. At the same time, Flint leased back the plane for 10 years. The sales price of the airplane was $498,300, the carrying amount $375,100, and the annual rental $73,904. Flint Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. How much gain on the sale should be reported at the end of 2017 in the financial statements? The gain on the sale should be reported $

(d) On January 1, 2017, Buffalo Co. sold equipment with an estimated useful life of 5 years. At the same time, Buffalo leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $214,700, the carrying amount is $303,000, the monthly rental under the lease is $6,100, and the present value of the rental payments is $116,494. For the year ended December 31, 2017, determine which items would be reported on its income statement for the sale-leaseback transaction. loss=$ and $ interest expense

Answer 1

A. Amount of deferred revenue to be reported is difference between Sale Price and Carrying Amount i.e. $515200-$401900=$133300.

B. Amount of deferred renenue to be reported is Zero considering lease is only for one year.

C. Gain on the sale to be reported in 2017 statement is:

Selling Price-Carrying Amount*10/55 (sum of the years digit depreciation)=(498300-375100)*10/55=22400

D. Rental Expense to be reported for year ended 31st December 2017=6100*12=73200

Loss on Sale to be reported as equipment sold on Fair Value which is less than carrying amount=214700-303000=88300

sale and lease back points to be considered:

1. if the present value of future lease payments is less than 10% of the asset’s fair value, the seller can immediately record profit on the sale.

2. If the asset’s fair value is lower than its carrying value in the seller’s records, a real loss has occurred and must be recognized immediately. On the other hand, if for some reason the seller’s price is below fair value, that type of loss can be deferred