Question

On January 1, 2017, Marin Corp. sold an airplane with an estimated useful life of 10 years. At the same time, Marin leased back the plane for 10 years. The sales price of the airplane was $497,200, the carrying amount $376,200, and the annual rental $74,306. Marin 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:

Answer 1

Calculation of amount of Deferred Revenue to Report

Amount of Gain to be Reported = Gain *10/55

Amount of Gain to be Reported = 121,000 * 10 / 55

Amount of Gain to be Reported = $ 22,000

Therefore, amount of Gain to be reported is $ 22,000

Calculation of Gain

Amount of Gain = Sale Price - Carrying Amount

Amount of Gain = $ 497,200 - $ 376,200

Amount of Gain = $121,000

Therefore, gain is $ 121,000

Calculation of Sum of Year Digit Depreciation Factor

Sum of Year Digit Depreciation Factor = n (n+1) / 2

Sum of Year Digit Depreciation Factor = 10 (10+1)/2

Sum of Year Digit Depreciation Factor = 110/2

Sum of Year Digit Depreciation Factor = 55

Therefore, sum of year digit Depreciation factor is 55.

Explanation:

It is given that sales price is $ 497,200. It is Deducted by carrying value is $ 376,200. Thus, the amount of Gain is $ 121,000. Depreciation factor is calculated as 55. Amount of Gain to be reported is calculated by multiplying $ 121,000 with 10 years and dividing it by 55. Therefore, the amount of gain to be reproted is $ 22,000.

Amount of Gain to be Reported is $ 22,000.