PROBLEMS

Problem 15-1 (ACP)

At the beginning of current year, German
Company
equipment to Sterling Company for P1,200,000 whichsold
is +an
fair value of the equipment.
The eguipment had a cost of
P2,500,000,
P1,000,000 and remaining useful life of 5carrying
years. amount of
On the same day, German
equipment for one year for anCompany leased back the
annual rental of P300.000
payable at the beginning of the year.
German Company had no option to renew or
equipment. repurchase the
Required:
Prepare journal entries for the
sale and leaseback current year to
transaction on the bookS ofrecord the
Company and Sterling Company. German
Problem 15-2 (ACP)
At the beginning of current year,
machine with a remaining useful life Canada
of Company soloa a
10
Company and simultaneously leased it back for 3 Saigou
years to
leaseback was appropriately classified as low years. ne
Sale price value leaSe.
Machinery 500,000
Accumulated
Annual rentaldepreciation
600,000
120,000
100,000
Required:
Prepare journal entries
transaction on the bookstoof record the sale and leaseback
Company for the current year.Canada Company and Saigon
472
Problem l5-3 (IFRS)

At thebeginning of current year, Juan

machine and immediately leased it Company sold a
back at market rental.
The details of the sale and leaseback were:

Sale price at fair value 5,000,000

Fair valueof machine 5,000,000
Carrying amount of machine 4,500,000
Annual rental payable at the end of each year 600,000
Remaining life of machine 10 years
Lease term 5 years
Implicit interest rate 10%
Present value of an ordinary annuity of l at 10%
for five periods 3.791

The leaseback provided for neither transfer of title to the

lessee nor a purchase option that is reasonably certain to be
exercised.

Required:
L. Compute the initial measurement of lease liability.

Z. Compute the cost of right of use asset.

transferred to the
O. Determine the gain on right
buyer-lessor.
the books of seller-lessee for the
4. Prepare journal entries on
current year.
journal entries on the books of buyer-lessor
repare
for the current year.

473
Problem 15-4 (IFRS)
At the beginning of current year, Falcon Company sold a
machine and immediately leased it back.

The following data related to the sale and leaseback

transaction:

Sale price at above fair value 6,000,000

Fair value of machine 5,000,000
Carrying amount of machine 4,500,000
Annual rental payable at the end of each year 800,000
Remaining life of machine 10years
Lease term 5years
Implicit interest rate 12%
Present value of an ordinary annuity of lat 12%
for five periods 3.60

There was no transfer of title to the lessee nor purchase

option that is reasonably certain to be exercised.

Required:
1. Compute the initial lease liability.
2. Compute the cost of right of use asset.
3. Determine the gain on right
transferred to buyer-lessor.
4. Prepare journal entries on the books of
current year. seller-lessee for the
5. Prepare journal entries on the
for the current year.
books of buyer-lessor

474
problem 15-5 (IFRS)

At the beginning ofcurrent year, Hazel Company sold a

machine and immediately leased it back.
he entity provided the following data
and leaseback transaction: regarding the sale
Sale price at below fair value
4,000,000
Fair value of machine
4,500,000
Carrying amount of machine
3,600,000
Annual rental payable at the end of each year 500,000
Remaining life of mnachine 10years
Lease term 3 years
Implicit interest rate 6%
Present value of an ordinary annuity of l at 6%
for 3periods 2.67

The lease provided for neither transfer of title to the lessee

upon lease expiration nor a purchase option that is
reasonably certain to be exercised.

Required:
I. Compute the initial lease liability.
Z. Compute the cost of right of use asset.

O. Determine the gain on right transferred to buyer-lessor.

seller-lessee
4. journal entries on the books of
Prepare
for the current year.
buyer-lessor
5. journal entries on the books of
Prepare
for the current year.

475
Problem 15-6 (IFRS)
Company sold
At the beginning of current year, World entity provideA
machine and immediately leased it back. "Theand leasebaclk
the following data regarding the sale
transaction:
Sale price at fair value 5,000,000
Carrying amount of machine 6,500,000
Annual rental payable at the end of each year 300,000
Lease term 4 years
Remaining life of machine 20 years
Implicit interest rate 6%
Present value of an ordinary annuity of l at
6% for four periods 3.465

Required:
1. Compute the initial lease liability.
2. Compute the cost of right of use asset.
3. Determine the loss on right transferred to buyer-lessor.
4. Prepare journal entries on the books of seller-lessee
for the current year.
5. Prepare journal entries on the books of buyer-lessor
for the current year.

Problem 15-7 IFRS)

At the beginning of current year, Universal Company sold
an equipment with remaining life of 10years and leased 1t
back immediately for 3 years.
Sale price 1,200,000
Carrying amount of equipment 2,500,000
Annual rental payable at the end of each year 500,000
12%
Implicit interest rate
Present value of an ordinary annuity of
lat 12% for three periods 2.40

It was reliably determined that the transfer of the asset by

the seller-lessee does not satisfy the recognition of a sale.

Required:
and
Prepare journal entries on the books of seller-lessee
buyer-lessor for the current year.
476
Problem15-8 (AICPA Adapted)
Atthe beginning of current year, Racquel Company sold a
building and immediately leased it back. The entity provided
followingdata regarding the sale and leaseback transaction:
Sale price at above fair value 9,000,000
Fair value of building 8,000,000
Carrying amount of building 7,200,000
Annuallrental payable at the end of eeach year 600,000
Remaining life of building 20 years
Lease term 4 years
Implicit interest rate 12%
Present value of an ordinary annuity of 3.037
lat 12% for four periods
1. What amount should be reported as initial lease liability?
a. 1,822,200
b. 2,400,000
C. 1,200,000
d. 1,000,000
of right.of use
2. What amount should be reported as cost
asset?

a. 1,639,980
b. 739,980
C. 822,200
d. 411,100
as gain on right
3. What amount should be reported
transferred to buyer-lessor?
a. 800,000
b. 720,000
C. 717,780
d. 400,000
reported as annual rental income
* What amount should be
of the buyer-lessor?
a. 600,000
b. 329, 272
C,
270,728
d.. 300,000
477
Problem 15-9 (IFRS)
At the beginning of current year, Pearl Company sold a
machine with remaining life of 10 years ahd immediatelu
leased it back for 5 years at the prevailing market rental
Sale price at fair value 7,500,000
Carrying amount of equipment 6,000,000
Annual rental payable at the end of each year 1,000,000
Implicit interest rate 6%
Present value of an ordinary annuity of 1at 6%
for 5periods 4.21

1. What amount should be reported initially as cost of right

of use asset?
a. 3,368,000
b. 3,290,000
C. 6,000,000
d. 3,750,000
2. What amount hould be reported as gain on right
transferred?
a. 658,000
b. 826,400
C. 750,000
d. 375,000
3. What amount should be reported as annual
of the right of use asset? depreciation
a. 673,600
b. 336,800
C. 842,000
d. 421,000
4. What amount should be reported as lease lhability at year-end?
a. 4,210,000
b. 3,290,000
C. 3,462,600
d. 3,210,000

478
Problem l5-10 (IFRS)

At
At the beginning of cucurrent year, Globe Company sold a
machine and immediately leased it back.
5,000,000
at fair value
Sale priceamount 6,000,000
Carrying of machine
Annual.rental payable at the end of each year 500,000
Lease term 5 years
20years
Remaining life of machine 6%
Implicit interest rate 4.21
periods
pV of an òrdinary annuity of l at 6% for 5
initially as cost of right
1. What amount should be reported
of use asset?

a. 2,105,000
b. 2,526,000
C. 2,895,000
d. 1,500,000
amount should be reported as loss on right
2. What buyer-lessor?
transferred to the
a. 579,000
b. 505,200
C. 500,000
d.

should be reported as lease liability at

ð. What amount
year-end?

a. 2,177,560
b. 1,605,000
C. 1,731,300
d. 2,105,000
reported as net annual rental
should be
* What amount buyer-lessor?
income of the
a. 373,700
b. 200,000
C. 500,000
d. 250,000
479
Problem 15-11 (IFRS)
At the beginning of current year, Easy Company sold an
equipment with remaining life of 10 years and immediately
leased it back for 4 years at the prevailing market rental.
Sale price at fair value 8,000,000
Carrying amount of equipment 6,000,000
Annual rental payable at the end of each year 1,000,000
Implicit interest rate 10%
Present value of an ordinary annuity of
lat 10% for four periods 3.17

1. What amount should be reported as initial lease liability?

a. 3,170,000
b. 4,000,000
C. 2,000,000
d.

2. What amount should be reported as cost of right of use

asset?

a. 2,377,500
b. 3,170,000
C. 3,500,000
d. 0

3. Whta amount should be reported as gain, on

transferred? right

a. 1,207,500
b. 2,000,000
C. 792,500
d. 500,000
4. What amount should be reported as annual depreciation
of the lessee?

a. 594,375
b. 800,000
C. 317,000
d. 400,000

480
 Problem 15-12 (IFRS)
Atthe beginning of current year, Judy Company sold a
building with remaining useful life of 30 years and
immediately leased it back for 5 years.
Sale price at below fair value 18,000,000
of building
Fair valueamount 20,000,000
Carrying of building 24,000,000
Annual rental payable at the nd of each year 1,000,000
Implicit interest rate 12%
Present value of an ordinary annuity of
1at 12% for 5 periods 3.60

1. What amount should be reported as initial lease liability?

a. 3,600,000
b. 4,000,000
C. 4,800,000
d.
2. What amount should be reported as cost of right of use
asset?
a. 3,000,000
b. 4,320,000
C. 5,760,000
d. 6,720,000
3. What amount should be reported as loss on right
transferred?
a. 4,000,000
b. 2,880,000
C. 5,760,000
d. 6,720,000
expense of
* What amount should be reported as interest
the seller-lessee for the current year'?
a. 120,000
b. 576,000
C.
d. 672,000
432,000
5. What amount should be reported as net annual rent
ncome of the buyer-lessor?
a. 400,000
b. 200,000
C. 300,000
d. 100,000
481
 (AICPA Adapted)
Problem 15-13
At the beginning of current year, Lee Company sold
affiliated entity at the fair value of
equipment to an unai
P5,000,000.
a carrying amount ofof P4,500,000 and
The equipment had
remaining life of 10years.
Lee Company leased back the equinmers
That same day,
per month for 2years with no option to renew
P15,000
equipment.
lease or repurchase the
present value of the le ase p ayments using th
The the date of sala
appropriate interest rate was P320,000on
initial lease
1. What amount should be recognized as
liability?
a. 320,000
b. 500,000
C. 360,000
d. 180,000
2. What amount should be recognized as cost of right of use
asset?

a. 360,000
b. 288,000
C. 320,000
d. 450,000
3. What amount should be as annual
recognized
depreciation of the right of use asset?
a. 144,000
b. 160,000
C. 180,000
d. 250,000
4. What amount should be recognized as gain on right

transferred to the buyer-lessor?

a. 500,000
b. 468,000
C. 250,000
d. 0

482
 Problem 15-14 (IFRS)
At the beginning of current year, Baker Company sold an
equipment with remaininig useful life of 10 years and
immediately leased it back for 5 years.
Saleprice at above fair value 5,700,000
Fair value of equipment 5,000,000
Carrying amount of equipment 4,500,000
Annualrental payable at the end of each year 500,000
Implicit interest rate 10%
Present value of an ordinary annuity of l at 10%
for 5 periods 3.79

1. What amount should be recognized as initial lease

liability?
a. 5,000,000
b. 5,700,000
C. 1,895,000
d. 1,195,000
2. What amount should be recognized as cost of right of
use aSset?

a. 5,000,000
b. 4,500,000
C. 1,075,500
d. 1,705,500

O. What amount should be recognized as gain on right

transferred to the buyer-lessor?
a. 250,000
b. 500,000
C. 380,500
d. 119,500
as annual rental
What amount should be recognized
lncome of the buyer-lessor?
a. 184,697
b. 315,303
C.
500,000
d.

483
Problem 15-15 (AICPA Adapted)
Cuba Company owned a building costing P5,000,000 with
P3,400,000 of accumulated depreciation. The building had a
remaining useful life of 15 years.
At the beginning of current year, the building was sold to
Mexico Company at the fair value of P2,400,000 and leased
back over an 8-year term with annual lease payment of
P300,000 to be made at the end of each year.
The interest rate implicit in the lease is 6%. The present
value of an ordinary annuity of 1 at 6% for eight periods is
6.21.

1. What amount should be reported as initial lease liability?

a. 1,863,000
b. 1,600,000
C. 2,400,000
d. 5,000,000
2. What amount should be reported as cost of right of use
asset?
a. 1,200,000
b. 1,242,000
C 1,600,000
d. 3,400,000
3. What amount shguld be reported as
transferred? gain on righ
a. 500,000
b. 250,000
C. 179,000
d. 400,000
4. What amount should be reported as net rental income
buyer-lessor? o
a. 300,000
b. 150,000
C. 120,000
d. 140,000

484