Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain...

Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $87,000 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. The book value of building (net) is $515,000.

Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.

Required:

Prepare journal entries for this sale and leaseback for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
Prepare the entry(ies) that Rawl would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.

Solutions

Expert Solution

ANSWER

Prepare journal entries for this sale and leaseback for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.

Journal entries

Date	Particulars	Debit($)	Credit($)
	1. US GAAP
Jan 1, 2017	Cash A/c Dr	$602,000
	To Deferred gain on sale A/c		$87,000
	To Building A/c		$515,000

Dec 31, 2017	Deferred gain on sale A/c Dr (87,000 /4)	$21,750
	To Gain on sale A/c		$21,750

Dec 31, 2018	Deferred gain on sale A/c Dr	$21,750
	To Gain on sale A/c		$21,750

	2. IFRS
Jan 1, 2017	Cash A/c Dr	$602,000
	To Gain on sale A/c		$87,000
	To Building A/c		$515,000

Prepare the entry(ies) that Rawl would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.

Journal entry

Date	Particulars	Debit($)	Credit($)
Jan 1, 2017	Deferred gain on sale A/c Dr (87,000 -21,750)	$65,250
	To Gain on sale A/c		$65,250

Jan 1, 2018	Deferred gain on sale A/c Dr	$43,500
	To Retained earnings A/c		$43,500
	(Being effect of conversion entry from US GAAP to IFRS)

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