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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:

  1. 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.

  2. 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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ekkarill92 answered 1 year ago
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